A new tax year starts on 6th April and that means a set of changes from previous budgets and statements will also come into effect. Here's a round up of what’s changing for small businesses:
Making Tax Digital: time to get ready!
Is your business registered for VAT and does it have to be registered because its sales are over the threshold? Making Tax Digital (MTD) reporting for VAT will become compulsory from 1st April 2019 for all businesses who are, and have to be, registered for VAT.
Why is this relevant now? If you prepare your accounts to 31st March every year and you’re not yet using digital software to keep your books, 1st April 2018 would be the best time to move across to a digital system so that you're ready and prepared for MTD to start, because an accounting year end is the easiest time to switch system. If you're trying to get to grips with a new bookkeeping system and a new filing method at the same time, it will make life harder for you, so we suggest you get ready early!
Dividend allowance falls
6th April 2018 sees the 0% tax allowance for dividends fall from £5,000 to £2,000 a year. That means if you are a sole director/shareholder of a limited company and you withdraw money from the company in a mixture of salary and dividends, your tax bill may go up. Do talk to your accountant about tax planning.
Pension contributions going up for the first time
There is an increase in the minimum contributions for automatic enrolment pensions, with the current combined minimum contribution of 2% rising to 5%. As before, the employer and the employee can choose to pay more than the minimum contributions if they want to.
VAT registration threshold stays the same
The VAT registration threshold usually rises every year at the beginning of April, but this year it's not going to. The Autumn Budget 2017 held the VAT registration threshold at £85,000 for a further 2 years, starting from 1st April 2018.
This represents a decrease in the threshold in real terms since inflation is still rising.
Increase in key rates and thresholds
Here's a brief summary of some of the rates and thresholds increases for 2018/19. All of these are for the full tax year unless otherwise stated:
Details 2018/19 2017/18
Personal Allowance £11,850 £11,500
Employee’s and employer’s NI becomes due at £8,424 £8,164
Higher rate tax becomes due at* £46,350 £45,000
Class 2 NI becomes due when profits pass £6,205 £6,025
Class 2 NI per week £2.95 £2.85
The Personal Allowance will reduce by £1 for every £2 of income above £100,000.
HMRC have now said that marriage allowance will be given at 20% regardless of whether the spouses are Scottish taxpayers or based in the rest of the UK.
*Except in Scotland