Many tax rates and allowances changed on 6th April 2013, as the new personal tax year began. This year, the RTI (Real Time Information) payroll rules also came into effect.
The ‘fiscal’ tax year – used in Governmental accounting and for Corporation Tax purposes – lasts from 1st April to 31st March, and the personal tax year from 6th April to 5th April.
Business-related tax changes (for example, the increase in the VAT registration limit, and the cut in the headline rate of Corporation Tax) came into effect on 1st April 2013, however a larger number of changes which affect individuals took affect on 6th April.
Here is a summary of the personal tax changes from April 2013
- The Personal Allowance is £9,440 (and will rise further to £10,000 from 6th April 2014). However, if you earn over £100,000, the value of the Personal Allowance is reduced by £1 for every £2 you earn above this threshold. So, at £118,880, you will receive no benefit at all.
- The Basic Income Tax rate (20%) applies to income up to £32,010 (on top of the personal allowance).
- The Higher Income Tax rate (40%) applies to income between £32,011 and £150,000. The higher rate threshold has been cut at successive budgets, so that more people than ever are subject to the 40% rate – enabling the Coalition to raise the Personal Allowance to its highest ever level.
- The Additional Income Tax rate (45%) applies to income over £150,000 (a cut from 50%).
- Taxation of dividends also applies to these same standard income tax bands; dividends are taxed at 10% (basic rate), 32.5% (higher rate) and 37.5% (additional rate), however all dividends receive a 10% ‘tax credit’, so the effective dividend tax rates are 0%, 25% and 30.55% respectively for the tax year beginning 6th April 2013. Dividends are not subject to National Insurance Contributions.
- Employees’ NICs are charged at 12% on income above the Primary Threshold (£149 per week) and at 2% above the Upper Earnings Limit (£797 per week).
- Employers’ NICs are charged at 13.8% on income above £148 per week.
- The National Minimum Wage (NMW) is £6.19 for workers over 21 (from 1st October 2012 onwards).
- All payrolls are now processed via the Real Time Information (RTI) system, which passes payroll information direct to HMRC each time employees are paid rather than merely at year-end. The RTI implementation has no effect on personal taxation, merely the way information is processed by HMRC.
- There are no changes to the Inheritance Tax (IHT) threshold, which remains at £325,000, and is unlikely to rise for several years to come.
- You can save up to £11,520 in an Individual Savings Account, tax-free. Half of this sum can be held as cash.
- The annual Capital Gains Tax (CGT) allowance for 2013/14 is £10,900.
- You can still invest up to £50,000 per year (tax free) into your pension, subject to ‘lifetime allowance’ of £1.5m. However, these rates are due to be cut from April 2014 onwards, so we recommend you discuss your personal situation with an IFA to ensure that you make the most of your tax-free limits over the coming year (you can also utilise previous years’ allowances).
Try our popular tax guides for more help on tax matters;
- 10 ways small business owners can pay less tax
- ByteStart’s Guide to the main business taxes
- Tax rates for small business owners – 2014/15
- How are limited company dividends taxed?
- How setting up a salary sacrifice scheme can reward staff and cut your tax bill
- ByteStart’s Guide to National Insurance Contributions (NICs) for small businesses
- Travel and accommodation expenses for the self-employed