To help small business owners and company directors stay up to date with all the various tax rates, thresholds and allowances that might be needed for tax calculations, here is ByteStart’s summary of the main tax rates, tax bands, and tax allowances for the tax year from 6 April 2015 to 5 April 2016.
If you are using these figures to help complete your self assessment tax return, you should also read our guide to; 10 common Self-Assessment Tax Return mistakes and how to avoid them.
If you need to know the tax rates, bands and thresholds previous tax years, you can find them here;
Income Tax Personal Allowances
- For the tax year 2015/16, the annual Personal Allowance rises to £10,600 from £10,000.
- The annual Personal Allowance for people born before 6 April 1938 is £10,660
- If you earn over £100,000 or more, the your Personal Allowance decreases by £1 for every £2 your adjusted net income is over £100,000. This creates an effective marginal tax rate of over 60% for income between £100,000 and £122,000.
- The 2015/16 tax year sees the introduction of a ‘Transferable Tax Allowance’ for married couples and civil partners born after 5 April 1935. It allows a basic-rate tax paying spouse or civil partner to transfer 10% of their Personal Allowance (£1060) to their spouse or civil partner. The recipient, providing they are not a higher rate tax payer, is eligible to a tax reduction of 20% of the transferred tax allowance. This means a potential tax-saving of £212 (20% of £1060).
Income Tax Rates, Bands & Thresholds
- The Basic Rate income tax threshold for 2015/16 is £31,785. Below this threshold, the Basic income tax rate of 20% applies.
- The Higher Rate income tax threshold is payable on income between £31,786 and £150,000. The higher rate income tax for 2015/16 is 40%.
- The ‘Additional Rate’ of 45%, applies to all income above £150,000 during the 2015/16 tax year.
Dividend Tax Rates
- For the 2015/16 tax year, the tax bands for dividend income are the same as those used for income tax (see above).
- As Corporation Tax has already been paid on company profits paid out as dividends, all shareholders receive a 10% dividend voucher with their dividends.
- As a result, there is no tax to pay on dividend income falling within the basic rate tax threshold of £31,785 for 2015/16.
- Dividend income falling into the higher rate tax band is taxed at 32.5%. After allowing for the 10% tax credit, the effective tax rate is 25%.
- Dividend income above the higher rate tax limit of £150,000 is taxed at 37.5% from April 2015 – an effective tax rate of 30.55% taking into account the dividend voucher).
- For more detailed information and the calculations you need to make to work out the tax you need to pay on your company dividends, read How company dividends are taxed.
- From 6 April 2016, the way dividends are taxed changes significantly. Sadly, it will mean a sizeable tax increase for many small business owners.
Paying less tax
To explore ways that could help you to pay less tax, read these ByteStart guides;
- 10 ways small business owners can pay less tax
- Corporation Tax – How to reduce your bill
- Capital Allowances – A review of the various schemes available for businesses to cut their tax bill
- Using Research & Development tax relief to reduce your corporation tax bill, or claim a tax refund from HMRC.
- As the Government previously set out, the main rate of Corporation Tax and the ‘small profits rate’ are aligned from 6 April 2015. This move effectively makes the small profits rate redundant.
- From 6 April 2015, the Corporation Tax rate for company profits is 20%.
- The main rate applies to annual profits of more than £1.5 million. Marginal relief applies to companies who declare annual profits between the two thresholds.
Value Added Tax (VAT)
- From April 1 2016, the compulsory VAT registration threshold increases to £83,000 from £82,000.
- The VAT de-registration threshold rises to £81,000 from £80,000.
- For more on VAT, read ByteStart’s 60-second guide to VAT for small businesses
National Insurance Contributions (NICs)
- If you are an employer, the Employers’ NIC rate is 13.8% on weekly earnings of £156 or more.
- Employees’ NICs are payable at 12% on income between £155 and £815 per week, and 2% on income over £815 per week.
- The self-employed pay Class 2 NICs at the rate of £2.80 per week. You are exempt from making Class 2 National Insurance payments if you earn less than £5,965 per year.
- The self-employed also pay Class 4 NICs at 9% on annual profits between £8,060 and £42,385, and 2% on profits above £42,385.
Corporate Allowances and Reliefs
- The Annual Investment Allowance is set at £200,000 for the 12-month period from 1 January 2106. The previous AIA – from April 2014 to December 2015 – was £500,000.
- The Plant & Machinery rate is 18%, and the special rate remains at 8%.
- The Small and Medium-sized Enterprise Scheme’s R&D tax credits is increased to 230% from 1 April 2015.
- The R&D Tax Relief scheme can allow you to cut your corporation tax bill by £130 on top of every £100 of qualifying costs. You can even get cash back from HMRC. Full details in our guide – How you can use Research & Development tax relief to cut your corporation tax bill
Other Personal Taxes & Allowances
- The Inheritance Tax (IHT) threshold stays at £325,000. Estates are taxed at 40% above this point, or 36% if at least 10% of the value of the estate is left to charity.
- The Individual Savings Account (ISA) limit is increased to £15,240.
- There are now 3 types of ISAs for adults; Cash ISAs, Stocks & Shares ISAs and Innovative Finance ISAs. You do not need to declare any interest, income or capital gains from ISAs, on your tax return.
- The annual Capital Gains Tax (CGT) allowance for 205/16 is £11,100.
- CGT is charged at 18% for basic rate taxpayers, and 28% for higher rate taxpayers.
- The annual tax-free pensions contribution limit stays at £40,000. The lifetime allowance for tax-free pension contributions is cut to £1million.
More tax help on ByteStart
For more information and guidance to help you deal with the thorny subjects of tax and accounting, try some of our popular guides for small businesses;
- ByteStart’s Guide to the main business taxes
- Dividend tax changes from April 2016 – A summary of the financial effects for small business owners
- How are limited company dividends taxed?
- How setting up a salary sacrifice scheme can reward staff and mean lower tax bills for employers and employees