What Are The Tax Bands and Thresholds for 2019-20?
Whether you run a company, are an employee or work as self-employed freelancer, here are all the new tax bands you’ll be paying in 2019-20.
Death and taxes – the two certainties of life have occupied the enormous amounts of thought for business owners, employees and accountants alike. Every year, as we approach April, questions surface – how have the rules changed? What are the new limits and how can I legally reduce my tax bill?
It can be a complicated minefield which is why we’ve tried to simply everything for you into this handy table. Even so, in order to fully understand your obligations and to make sure you can take advantage of everything you’re entitled to, it’s a good idea to consult an accountant. This could save you hundreds and even thousands of pounds on your eventual tax bill.
Income tax is the amount most employees see deducted from their pay packets. They range from basic rate at 20% to the additional rate on all incomes above £150,000 which is 45%.
|Basic rate: The rate most people pay.||Between £11,851 and £46,350: 20%. (The total amount you pay tax on is £34,500.)||Between £12,501 and £50,000: 20%. (The total amount you pay tax on is: £37,500.)|
|Higher rate: The middle tier for higher earners.||Between £46,351 and £150,000: 40%||Between £50,001 and £150,000: 40%|
|Additional rate: The top rate for the highest.||Above £150,000: 45%||Above £150,000: 45%|
They do things differently in Scotland
For 2018/19 and 2019/20, Scotland has different tax rates for Scottish residents. As with the rest of the UK, the Personal Allowance is reduced by £1 for every £2 earned over £100,000. This is the same as the rest of the UK.
|Band name||Tax Rate||2018/19||2019/2020|
|Starter rate||19%||£11,850 – £13,850||£12,500 – £14,549|
|Basic rate||20%||£13,851 – £24,000||£14,550 – £24,944|
|Intermediate||21%||£24,001 – £44,273||£24,945 – £43,430|
|Higher rate||41%||£44,274 – £150,000||£43,431 – £150,000|
|Additional rate||46%||Over £150,000||Over £150,000|
The personal allowance is the limit below which you pay no taxes on your income. It has recently become something of an annual tradition to see the personal allowance threshold rise very slightly every year and 2019-20 is no exception as we see it rise from £11,850 to £12,500. However, higher rate taxpayers will see their personal allowance reduced once they reach £100,000 until they receive nothing at all.
|Point at which personal allowance is reduced (£1 of personal allowance for each £2 you earn above £100,000)||£100,000||£100,000|
|Point at which personal allowance ends||£123,700||£125,000|
Here’s where things can get difficult. National Insurance bands and rates can be some of the most confusing around – mainly because things are different depending on whether you’re an employee, sole trader or director of a limited company. Contributions (NIC) are usually calculated weekly rather annually, but to be on the safe side we’ve included both of them here.
If you’re an employee, you will have to pay National Insurance Contributions. These will be calculated by your employer and taken out of your pay packet.
|Lower Earnings Limit: Earnings below this limit will incur no NICs||£116||£6,032||£118||£6,136|
|Primary Threshold: Any Earnings below this limit will incur no NICs||£162||£8,424||£166||£8,632|
|Upper Earnings Limit: Earnings between the Primary Threshold and the Upper Earnings Limit will be taxed at 12%.||£892||£46,350||£962||£50,000|
Any earnings above the upper limit are taxed at 2%.
All employers have to pay their own national insurance contributions. For 2018/19 these were £162 per week or £8,424 per year. For 2019/20, these rise to £166 per week or £8,632.
NIC for the self employed
If you decide to go self-employed you will have to calculate a whole different set of NIC. These will depend on your taxable profits for any tax year.
|2018 – 2019||2019 – 2020|
|Small profits threshold – No NICs for earnings below the threshold.||£6,205||£6,365|
|Class 2 NICs – If your company earns more than the small profits threshold.||£2.95 per week||£3 per week|
|Lower Profits Limit – Class 2 NICs apply for earnings up to this limit. Over this limit, Class 4 applies.||£8,424||£8,632|
|Upper Profits Limit – Earnings up to this limit incur: Class 2 NIC and Class 4 NIC at 9% of the profit between the Lower Profits Limit and Upper Profits Limit.||£46,350||£50,000|
The upper profits limit has been extended from £46,350 to 2018-19 to £50,000. These include:
- Class 2 NICs
- Class 4 NICs at 9% of the profit between the Lower Profits Limit and Upper Profits Limit
- Class 4 NICs at 2% of the profit above the Upper Profits Limit.
Capital Gains Tax
Whenever you sell or dispose of an asset that has increased in value, you’ll be liable to capital gains tax on the profit. This is not the amount you receive. How much you pay will be linked to your taxable income. These rules can be extremely complex so it can help to talk to an accountant.
|Annual capital gains exemption||£11,700||£12,000|
|Basic rate taxpayers||Gains from other residential property||18%||18%|
|Gains from other chargeable assets||10%||10%|
|Higher Rate taxpayers||Gains from other residential property||28%||28%|
|Gains from other chargeable assets||20%||20%|
Entrepreneurs have a lifetime relief of 10%.
Companies will have to shoulder a number of taxes. The most well-known is corporation tax. For this year, the rate is unchanged at 19%, but the Government does plan to reduce it to 17% for the 2020-21 tax year. However, as so often, a change of government could see things head in the opposite direction.
The level of revenue at which you must register for VAT also remains unchanged at £85,000. From then on, the general VAT rates are as follows:
|Standard: The VAT rate which applies to most goods or services. It’s the one most of us will expect to pay.||20%||20%|
|Reduced rate: A lower rate for certain goods and services.||5%||5%|
Certain goods or services have a zero-rate applied which means there will be no VAT.
Flat Rate VAT scheme sector rates
The flat rate scheme was introduced to simplify VAT for smaller businesses. You will only have to submit a flat rate to HMRC which reduces the amount of paperwork you have to manage. It also allows you to keep the difference between the flat rate and the amount charged to customers, which can be a handy little bonus. If your turnover exceeds £230,000 per year you can no longer use the flat rate scheme and if you are a limited cost trader you must use the 16.5% rate regardless of the sector.
Rates vary depending on the business sector, so if you want to join a scheme you should select your sector and look at the rates for all transactions where VAT applies. Again, this can all be complicated which is why it’s a good idea to consult an expert.
Business mileage can be claimed at specific rates. This is called the approved mileage allowance payments (AMAP).
|First 10,000 miles||Over 10,000 miles|
|Car / van||£0.45||£0.25|
Dividend tax rates
Dividend taxes are lower than general income tax which is why many self-employed people choose to incorporate as limited companies. This enables them to optimise their tax bill by paying themselves a salary at around the lowest rate and taking the rest through dividends. The Government has been moving to reduce this practice in the last few years, so it’s not as clear a cut benefit as it used to be, but it can still be worthwhile.
Dividend tax rates remain unchanged for 2019/2020 which means it’s a case of ‘as you were’:
You still have a tax-free dividend allowance of 2,000 and if you’re a basic rate tax payer you’ll pay 7.5% on dividends. Higher rate tax payers pay 32.5% and additional rate tax payers will pay 32.5%.
Sorting out your Tax
Whether you’re just an employee or have gone self-employed, tax can be a complicated minefield, which is why it may well be worthwhile employing a person or company to help manage your accounts. It can cost money and many contractors and small businesses will choose to manage all their accounts themselves. This can lead to mistakes and missing various opportunities to reduce your tax bill. A good accountant, therefore, could more than repay that investment when it comes to paying your taxes at the end of the year.
At 3 Wise Bears, we offer a range of accountancy services including managing your end of year accounts. This means we’ll take away the burden of filling in your tax forms, ensure you comply with all the rules and optimise your tax bill.