To clarify the various tax rates, thresholds and allowances that self employed workers, business owners and company directors need to be aware of 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 2016 to 5 April 2017.
These are the rates and thresholds that you will need to use for completing self assessment tax returns for 2016/17.
The deadline for filing a paper tax return for the 2016/17 tax year is 30 October 2017. If you are completing your self assessment online, you have until 31 January to submit your return.
Before completing 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;
- Tax rates for small business owners – 2015/16
- Tax rates for small business owners – 2014/15
- Tax rates for small business owners – 2013/14
Income Tax Personal Allowances
- For the tax year 2016/17, the annual Personal Allowance rises to £11,000 from £10,600.
- If you earn over £100,000 or more, 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 ‘Marriage Allowance’ can benefit married couples and civil partners born after 5 April 1935. It allows a basic-rate tax paying spouse or civil partner to transfer £1,150 of their Personal Allowance 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 annual tax-saving of £230 (20% of £11,500). Marriage Allowance claims can be back-dated to 5 April 2015.
Income Tax Rates, Bands & Thresholds
- The Basic Rate income tax threshold for 2016/17 is £32,000. Below this threshold, the Basic income tax rate of 20% applies.
- The Higher Rate income tax threshold is payable on income between £32,001 and £150,000. The higher rate income tax for 2016/17 is 40%.
- The ‘Additional Rate’ of 45%, applies to all income above £150,000 during the 2016/17 tax year.
Dividend Tax Rates
- The rules on the taxation of dividends have changed significantly. Business owners receiving dividend payments will now pay more tax.
- For the 2016/17 tax year, there is no tax to pay on dividends received up to the value of £5,000.
- The tax rates on dividends over £5,000 are; 7.5% for Basic rate taxpayers, 32.5% for Higher rate taxpayers and 38.1% for Additional rate taxpayers.
- The tax bands for dividend income are the same as those used for income tax (see above).
- There is no tax to pay on dividends that fall into your £11,000 Personal Allowance for 2016/17.
- 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; Company dividend tax changes for 2016/17.
- For the 2016/17 tax year, the Corporation Tax rate for company profits is 20%. It will fall to 19% from 6 April 2017.
- There is no longer a ‘small profits rate’ so there is no need to calculate marginal relief for companies with annual profits of between £300,00 and £1.5 million.
- Our dedicated guide to Corporation Tax explains how corporation tax works and when you need to pay it.
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)
- The Employers’ NIC rate is 13.8% on weekly earnings of £155 or more.
- Employees’ NICs are payable at 12% on income between £155 and £827 per week, and 2% on income over £827 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 £43,000, and 2% on profits above £43,000.
Corporate Allowances and Reliefs
- The Annual Investment Allowance is set at £200,000 for the 12-month period from 1 January 2016.
- 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 for 2016/17 is £15,240.
- There are now 4 types of ISAs for adults; Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs and Lifetime 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 2016/17 is £11,100.
- CGT is charged at 18% for basic rate taxpayers, and 28% for higher rate taxpayers.
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;
Paying less tax
- 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
- ByteStart’s Guide to the main business taxes
- Dividend tax changes from April 2016 – A summary of the financial effects for small business owners
- Sole Trader Tax – A Guide for the self employed