The Autumn Budget 2018 brought interesting changes to various forms of taxation. Some of these will impact on the way you run your business or charity. Understanding the new tax rules is important, as it helps to keep yourself right with regards to your upcoming tax commitments.
Let’s look at the notable points around tax and compliance to come in the 2019/20 tax year.
WHAT CHANGES ARE TAKING PLACE REGARDING PERSONAL TAXES?
One of the most significant changes pertains to your personal taxes – specifically your Personal Allowance. This is the level of income you can receive before you would be expected to pay tax. Anyone earning under £100,000 will see a personal allowance increase from £11,850 to £12,500. You will pay tax on any earnings above your allowance at income tax rates applicable depending on how much more you receive.
Those earning up to £125,000 in 2019/20 will see a decrease from the new £12,500 allowance by £1 for every £2 earned above £100,000. This will continue until the allowance falls to £0, such that anyone with an income over £125,000 will not benefit from a personal tax allowance.
INCOME TAX CHANGES FOR 2019/20
Thresholds on rates of Income Tax have moved slightly from 2018/19. For the 2019/20 tax year anyone with earnings over £12,500 and up to £50,000 will now be taxed on this at the basic rate of tax, 20%. However, the 40% rate of tax now applies on income from £50,000 to £150,000. Anyone with an income over £150,000 will pay the same 45% tax rates on this as previously.
For anyone drawing an income in the form of both a salary and dividends from their company, it might be beneficial to look at our previous article on Dividend Allowances. In regard to this the dividend allowance is still £2,000, but the threshold for taking a salary before any NICs are charged rises to £8,632.
CAPITAL GAINS TAX ANNUAL EXEMPTION
One small adjustment is worth noting in relation to Capital Gains Tax. This is to your annual exemption amount which is increasing by £300, from £11,700 to £12,000. If your gains go above this rate, then you may need to pay CGT. You can read more about CGT in preparation at gov.uk site.
There were significant amendments to rules on Entrepreneurs’ Relief which are explained in a previous article you can find in our Insights section.
BUSINESS TAX ADJUSTMENTS TO TAKE NOTE OF
Business taxes will also see some changes, too. There is a recent 2-year increase on your Annual Investment Allowance (AIA), which is now set at £1m p.a. This allowance permits a company to charge expenditure on new plant and machinery against profits in the accounting period they are incurred, rather than using capital allowances to write down the depreciation in value over several periods. The increased allowance relates to purchases made between 1st January 2019 and 31st December 2020. For companies with accounting periods straddling these dates the AIA entitlement should be assessed on a pro-rata basis. More on AIA can be found here.
Also, a new 2% capital allowance has been introduced for structures and non-residential building contracts entered into from 29 October 2018. This tax relief, though, will be balanced by amendments to others, with rates moving from 8% to 6% on long-life plant and machinery assets.
A one-third reduction is being brought in for business rates for retail premises. This will be on those up to a rateable value of £51,000 – but only until business rate revaluations take place in 2021.
VAT registration thresholds will remain at £85,000 for two years until April 2022. Depending on the outcome of the Brexit from the European Union, this may fluctuate in the long-term. For now, though, this will apply until 2022.
CHARITY TAX RULES TO PREPARE FOR
For those involved in the running of a charity, some small but significant amendments come into play for the 2019/20 tax year. These are aimed at reducing the burden of administration, making compliance easier for charitable organisations.
The biggest difference is an increase to the upper limit for relief from trading under the Small Trading Tax Exemption rules. A charity can make profits from non-primary trading activities without incurring any tax liabilities on these, under certain rules. This affects charities with a gross annual income of less than £20,000, where the limit has been increased from £5,000 to £8,000. Alternatively, charities with a gross annual income of £200,000 or over can take advantage of an increase from £50,000 to £80,000.
Also, charities will now benefit from a relaxing of rules on the Retail Gift Aid Scheme. This will help with sending letters to donors which can now be done every three years when their goods raise less than £20 per year, instead of every year as before.
The other significant change that comes into play is that the individual donation limit is being increased. For donations received under the Gift Aid Small Donations Scheme, this now applies on donations up to £30. It is aimed at ‘small collections’ where it would otherwise be impractical or difficult to obtain a Gift Aid declaration.
FINDING OUT HOW TAX CHANGES IN 2019/20 IMPACT YOU
The new tax year brings with it some interesting changes to taxes. You would benefit from receiving up-to-date tax advice, as some changes may or may not relate to your circumstances. If you are unsure about anything covered in this article, then you should seek out professional tax advice as soon as possible.
Devonshire Green can assist with any issues related to how the 2019/20 tax year might impact on you. If you would like help with deciding what to do next, we are happy to assist. Simply let us know what concerns you might have about the upcoming tax year and we can arrange a discussion.