Fruit flies like a banana!!!
Paula Veysey Smith • 11 March 2019
Time flies like an arrow and fruit flies like a banana (work it out!); here we are again, the 5th April approaching fast . . . . whether you’re an arrow or a fruit fly, it’s time to get ready for the tax year end!
With that in mind here are a few pointers to consider:
- The tax benefit on dividends has certainly been carved away; long gone are the days of the 10% dividend tax credit! For this tax year there is a £2, 000 dividend allowance at zero rate, yes that’s all! Any money taken by dividends will be considered in an individual’s tax return. This means that up to the higher bracket the tax on dividends is 7.5% and thereafter you will be suffering 32.5%. However, if you cross into additional rate, you will be looking at 38.1%! However, dividends are still the most efficient way for a director to take funds from their company.
- The personal tax allowance is £11, 850 this year with a promise in the last budget to increase this to £12, 500 to April 2020. The higher rate is due to increase to £50, 000. Watch this space!
- The threshold at which you pay a higher rate of tax has increased to £46, 351 but the additional rate has stayed the same at £150, 000. The rates of tax paid have also stayed the same at 20%, 40% and 45%. Please remember that you only pay the higher rates of tax on the income over the thresholds, not the total income. Also, if you are an additional tax payer your personal tax allowance will decrease by £1 for every £2 that you earn above £100, 000.
- The auto-enrolment pension rates are 2% employer minimum contribution and 3% staff contribution to 5th April 2019. From 2019 onwards these will be 3% employer and 4% staff. It is important that companies realise how the rates raise will not only impact their own contributions but also those employees who have opted to buy into such pensions.
- The main rate of corporation tax has reduced from 20% to 19% in 2018. This rate is due to remain for the 2019 year. Currently it is due to reduce to 18% starting the 1st April 2020.
These are just a few headlines for the new tax year. If you have any specific questions please do get in touch as I know there are other areas of tax that many are affected by. We can start working with you straight away – there’s no need to wait for the deadline of the 31st January 2020!!!
Paula
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Do you work from home? If you do, either full-time or part-time, you may be eligible to claim certain expenses either against your own taxes or your Limited Company ones. Many factors will determine what you can claim such as working location, employment status (employee, self-employed, company director), and how much of your home is used for work. What can I claim as an employee of a company? You can claim: A flat-rate allowance of £6 per week (or £26 per month) without needing to provide evidence of expenses. This is the simplest method and can be claimed via your tax code or tax return. The actual costs (if you don't use the flat rate) which can include a proportion of the following: Heating and electricity Internet and phone bills Water (if it’s metered and usage is clearly work-related) You cannot claim rent or mortgage interest unless you're self-employed. These expenses can be claimed via HMRC’s online portal if they have not already been reimbursed by your employer! What can I claim if self-employed (sole trader or via a Partnership)? Here you have two options: 1. Simplified Expenses (Flat Rate) Based on hours you work from home each month: 25–50 hours/month → £10/month 51–100 hours/month → £18/month 101+ hours/month → £26/month 2. Actual Expenses Method You can claim a proportion of: Rent or mortgage interest (not capital repayments) Utilities (gas, electricity, water) Council tax Internet and phone Cleaning and maintenance Home insurance (if work-related) You’ll need to work out the percentage of your home used for business, usually by the number of rooms (not including bathrooms, corridors, storage space) or square footage. One word of warning is never claim the whole use of a room for business as every room will have duality in use. This is also important if you own your home as a room declared purely an office could attract Capital Gains Tax when the property is sold. We suggest that any room should only be claimed at 90% for business. And only one room can be used, not a multiple! These costs should be included on your Self-Assessment tax return. Can I make a claim for these expenses in my Limited Company? Yes, you most certainly can. At MPower Accounting we not only recommend using the actual expenses method as set out above, we provide our clients with a bespoke spreadsheet to calculate these expenses, and others such as mileage, on a month-by-month basis. These amounts can then be claimed as expenses to the Company and paid out to you. It is one of the tax efficient methods of taking money from your business. Capturing and calculating monthly your regular working from home expenses is the best way of ensuring they are recorded correctly. To help you do this we are offering a free download of the spreadsheet usually only available to our clients; please use the link below to get this. Paying taxes is a necessary evil but I am a firm believer in minimising this liability for both individuals and companies. Correctly claiming working at home expenses is one way to reduce your tax bill. Please do contact us if we can help you further identifying all the expenses you can claim and also for further assistance in how to correctly use and populate the downloaded template.
Key changes in Employer National Insurance (NI) rates and thresholds for the 2025-26 year have meant advice on the tax efficient salary for Directors has significant altered.
HMRC are starting to send out letters to sole traders and landlords in the initial steps towards Making Tax Digital for Income Tax. If you receive one of these letters do not panic, help is at hand. So let’s answer your most asked questions about Making Tax Digital. What is Making Tax Digital for Income Tax? Making Tax Digital for Income Tax (MTD for ITSA) is a UK government initiative aimed at modernising the tax system. It will require individuals and businesses to keep digital records and submit tax information to HMRC using compatible software. It is part of a broader initiative to digitalise tax returns and follows on from the changes already implemented for VAT reporting. Will Making Tax Digital affect me? MTD for ITSA will affect individuals who: Are self-employed (e.g. sole traders) and/or landlords (earning income from property). Have a total income over £50,000 per year (combined from self-employment and property). Are currently required to complete a Self-Assessment tax return. From April 2026 , MTD for ITSA will be mandatory for those earning over £50,000. From April 2027 , this threshold will reduce to £30,000. What will I have to do if my earnings are over the threshold? You will need to keep digital records for income and expenses which will mean using MTD compatible software. This will be a major change for those of you still keeping paper records. Instead of submitting an annual self-assessment return you will need to submit quarterly updates 4 times a year to HMRC. At the end of the tax year an End of Period Statement (EPOS) and a Final Declaration will need to be submitted which essentially replaces the current Self-assessment return. All of these will be required digitally, paper records and manual calculations will no longer be accepted. This means that instead of 1 annual return you will need to make 6 submissions! So what software do I need to use to keep digital records? Acceptable software include: QuickBooks Xero FreeAgent Sage or, HMRC-recognised spreadsheet tools with bridging software ( not highly recommended ) No more shoeboxes of receipts or manual books — everything must be digitally recorded. When will I need to register for MTD? You’ll need to sign up for MTD for ITSA before April 2026 . This is a deadline and not a target, signing up early is always advisable. HMRC will provide a service for you to do this but having the guiding hand of an accountant will make this a much easier task.
