Written by FCSA Business Partner, FreeAgent.
A new tax year will be starting soon. What’s changing for your small business clients at the beginning of April 2018? Emily Coltman FCA, chief accountant to multi-award-winning cloud accounting provider FreeAgent, investigates.
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 |
*Except in Scotland (see below)
Dividend allowance falling
6th April 2018 will see the 0% tax allowance for dividends fall from £5,000 to £2,000 a year. This will increase the need for careful tax planning for clients who draw money from their limited companies as dividends. It also means that fewer clients who are now sole traders would save tax by incorporating their businesses.
No increase in the VAT registration threshold
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.
Scottish rates of income tax
If you have clients who are Scottish taxpayers, be aware that they will be subject to several more rates of income tax than anyone in the rest of the UK from 6th April 2018.
Here are the new Scottish rates of income tax that will apply to taxpayers who receive the standard UK Personal Allowance:
| Band | Band name | Rate % |
| £11,851 – £13,850 | Starter rate | 19 |
| £13,851 – £24,000 | Basic rate | 20 |
| £24,001 – £43,430 | Intermediate rate | 21 |
| £43,431 – £150,000 | Higher rate | 41 |
| £150,001 and over | Top rate | 46 |
The Personal Allowance will reduce by £1 for every £2 of income above £100,000.
This will make tax computations and projections harder to work out for Scottish taxpayers, especially as these rates and bands apply only to income which is neither dividend income nor savings income. For example, a computation for a sole director of a limited company, if that individual is a Scottish taxpayer, will now take into account salary at Scottish rates but dividends at the rates that apply to the rest of the UK.
HMRC has yet to explain how marriage allowance will work for Scottish taxpayers, especially if one spouse is a Scottish taxpayer and the other is a taxpayer in the rest of the UK.
Making Tax Digital: get ready now!
MTD reporting for VAT will become compulsory from 1st April 2019 for all clients who are, and have to be, registered for VAT.
Why is this relevant now?
If your client has a March year-end and is not yet using digital software to keep their books, 1st April 2018 will be the best date to move them across because a year-end is the easiest time to switch system. It will also give your clients plenty of time to get used to using accounting software before compulsory MTD reporting for VAT comes into effect.
FreeAgent’s VAT submissions will be MTD compliant come April 2019. Take a 14-day free trial of FreeAgent to find out how it could improve your client relationships. Find out more on their website.
