The start of the new tax year brings a raft of changes that have consequences for your personal finances.

1. As expected, the Government is to raise the Personal Allowance to £11,850 in the 2018-19 tax year – up from £11,500 currently.

At the same time, the higher-rate, 40pc, tax threshold is to increase to £46,350 from £45,000.

Since the 6th April 2016, the way dividends are taxed has changed (7.5% above the amount £5.000).

Many of our clients received the information that their tax code has been changed.

The HMRC tax office expects that in the next tax year 2018/19, the director will have the right to receive a similar amount of dividend and that is the reason why they take tax dividend in advance.

2. In this tax year Primus recommends to set up the salary as the amount no less than 1 of 12 of the Personal Allowance which is £987.50 (£11,850 / 12 months).

Primus do not recommend that you change your salary due to the reduced tax code to dividend tax. It might seem tempting but this solution definitely will contribute to an undeniable increase of Corporation Tax and also dividend tax.

3. National Insurance rates and threshold have been set for 2018/19. The lower earnings limit for Class 1 National Insurance purposes will increase to £702 per month.

Monthly payment for National Insurance Contribution class 1 for directors based on monthly salary £987.50 will be £73.66.

The above amount does not include Employment Allowance (exemption from employer’s NI contributions). Please note that you cannot apply for an exemption if the director is the sole employee of the company.

In addition, the employment of a second employee does not automatically mean the possibility of applying Employment Allowance, because the salary of this second employee must exceed the Secondary Threshold (ST), it means this employee must also pay NIC contributions.

4. The National Minimum Wage (NMW) is the minimum pay per hour almost all workers are entitled to by law.

– The NLW, which applies to those aged 25 and over, will increase from £7.50 to £7.83 per hour;
– The NMW for 21- to 24-year- olds will increase from £7.05 to £7.38 per hour;
– The NMW for 18- to 20-year- olds will increase from £5.60 to £5.90 per hour;
– The NMW for 16- and 17-year- olds will increase from £4.05 to £4.20 per hour;
– The apprentice rate of the NMW, which applies to apprentices aged under 19 or those aged 19 or over and in the first year of their apprenticeship, will increase from £3.50 to £3.70 per hour.

5. Increases to Auto Enrolment Pension Contributions due in April 2018.

On 6 April 2018, all employers will be required to increase the minimum contribution from the current level of 2% of qualifying earnings to 5%. The minimum contribution employers and staff pay into their automatic enrolment pension goes up to 2% for employers and 3% for employees.

Further increases in rates are scheduled for April 2019 (3% employer contribution and 5% employee contribution), so you will need to factor this in to your budget for the forthcoming year if you are currently paying the minimum 1%.

6. The ‘dividend allowance’ is due to be cut from £5,000 to £2,000 from April 2018.

So, the first £2,000 of dividends are not taxed at all, the basic rate band for dividend above £2.000 is 7.5%.

7. Among the positive government’s decision we can mention is that there will be no changes to the £85,000 VAT threshold for the next two years. Please pay attention on the fact that chancellor suggested in The Autumn Budget government can cut this limit to bring it in line with other counties in Europe.
8. The decision to increase the percentage National Insurance Contributions class 4 for self-employed was also postponed. The government plans to raise the rate from 9% to 11%.
9. Please contact the directors of all limited companies who use the company's limited assets privately. It’s regarding the situation when, for example, car belonging to the limited company is also used privately.

It may also be a different situation related to the fact that limited companies pay for:

• mileage for commuting
• private bills such as a private telephone, internet,
• insurance for which the director is the beneficiary,
• bill for gyms, holidays, trips to other countries unrelated to business
• bill for trainings not related to the profession carried out in limited company
• all other employee benefits that are not shown in payslip

Above benefits in kind are taxable, tax is paid on the taxable value of the benefit. HM Revenue and Customs defines this as the cash equivalent value. It is necessary to inform the accountant in
advance about paying benefit in kind. The accountant will recognize the tax obligation and make an appropriate notification to HMRC.

If you plan to register benefit in kind, you must make a proper notification on the HMRC website in March 2018. Then taxes from will be paid on a current basis. Otherwise, the company must submit the P11D document once a year and the director’s taxes connected to benefit in kind will be collected by changing the tax code in the next tax year

We invite you to read our article about IR35.