Every year, the Chancellor of the Exchequer spells out the vision for the future and while most of the headlines are taken up by announcements on extra taxes for a pint of beer, a glass of wine or a tank of petrol, the announcements go much further than that. Anything and everything from Income Tax, pensions, National Insurance and VAT are spelled out for the coming years – things that actually directly affect the pay-packet of everyone in the country.

The new rules beginning next week are more modest than previous years. The Personal Allowance – your tax-free earnings – will be £11,850, which is £350 more than this year. If you earn more than this, you’ll pay 20% Income Tax on the extra, which is Basic Rate.

 

For people earning more, the higher tax threshold is raised a bit more generously and starts at £34,500; any earnings over this are charged 40% tax. It’s important to note you’re only charged the higher rate on money above this level, anything below it still gets taxed at Basic Rate. For example, if you earned £45,450 (made up of your £11,850 free allowance plus your £34,500 limit), you’d only pay higher rate on the £100 over the limit, not on everything you’ve earned.

 

There’s also an additional tax rate of 45% on earnings above £150,000.

 

If you’re an employee, you pay 12% National Insurance on earnings above £8,424 and if you’re an employer, you’ll also have to pay Employer’s National Insurance on those earnings too. The Government has again given each business £3,000 of Employers’ NI relief, which could come in handy depending on how big your business is!

 

For company directors, the news is less good. Corporation Tax – the money paid to Government on profits – stays at 19% and won’t come down until 2020. The threshold for Director Dividends has fallen to £2,000 and any amount over this will have 7.5% tax due on your Self-Assessment next year. Many small companies made up on only one or two employees who are also directors use dividends as a way to make up for uneven cashflow, so it’s important to remember you may need to pay Corporation Tax and personal tax on those payments.

 

If you have student loans to pay, if you started your degree before 2012, then you’ll be expected to pay on earnings over £18,330 – or £25,000 if this was after 2012. It’s always worth knowing how much you’re liable to pay in Income Tax, National Insurance and Student Loans because it prevents you from being surprised when suddenly presented with a large bill at the end of the year!

 

It’s also worth knowing what you can claim back; mileage allowances for employees using their own vehicles are 45p per mile for the first 10,000 miles in the year – after this the allowance drops to 25p per mile. It’s worth reading up on our blog regarding permissible expenses to make sure you’re not losing out!

 

The rules regarding tax change every year, and while there’s usually a good reason or why these changes come in, all the different figures can be a little confusing! If you’re at all concerned about how to make sure you don’t miss out or overpay, then simply get in touch!