With a new tax year comes tax changes that affect all of us. This article will go into some of the tax changes you should be aware of and how they may affect you.
Your personal allowance is the amount you can earn tax-free before you start paying income tax. This amount has risen from £11,500 to £11,850, meaning that you will now not be taxed on the first £11,850 of your earnings. The allowance will be the same for all age groups, including pensioners.
A basic rate tax of 20% will be changed on any income between £11,850 to £46,350. You can therefor earn £46,350 before you income falls into the higher (40%) tax bracket.
For those who earn £100,000 or more, your tax-free allowance will fall by £1 for ever £2 you earn over £100,000. So, if you earn £123,700 or more, you will not receive a tax-free personal allowance.
An additional rate income tax of 45% will be charged on those with earnings over £150,000.
Room Rental Tax Allowance
A tax-free income of £7,500 is allowed to homeowners with rental income from lodgers, or £3,750 each if they are letting their home with someone else.
This allowance is eligible to those who own their home and those who do not.
Personal Savings Allowance
If you receive income for m savings, it may be possible to reduce your tax bill further,
Basic Rate Taxpayers can now earn £1,000 from savings before they start oaying income tax on savings income..
Higher rate taxpayers will have to pay tax on savings over £500.
Employees must pay national insurance once they are earning £162 or more per week. This is a payable at a rate of 12% of earnings up to £892 a week. This falls 2% for earnings above this threshold.
Self-Employed individuals that make more than £6,205 each year must pay class 2 national insurance contributions, which works out at a flat-rate of £2.95 each week regardless of how much you earn.
Self-employed individuals, who earn over £8,424 per year, must pay class 4 national insurance contributions of 9% on profits between £8424 and £46,350.
The dividends tax allowance has been cut down from £5,000 to £2,000.
Once the allowance is reached, basic rate taxpayers will be required to pay 7.5% tax on dividends, while higher rate taxpayers will be subject to 32.5% tax and additional rate taxpayers will be charged at 38.1%.