When it comes to managing your personal and business accounts you never want to be paying more tax than you need to. In a previous blog we shared the ways to reduce the tax you pay. In this blog we’re giving you a quick guide to tax thresholds to help you identify how much you should be paying.
Personal tax allowance
Your personal tax allowance is the amount you can earn without having to pay income tax. If you earn more than your personal allowance you’ll be taxed on the earnings above your allowance, but the allowance itself will remain untaxed.
The personal allowance threshold is currently £11,000 however, for the 2017/2018 tax year this will increase to £11,500.
Changes to income tax bands
Knowing your income tax band is essential for identifying your taxable income. Once you know your personal tax allowance anything extra is subject to income tax, this includes employment income, self employed income, income from property rentals and any other untaxed income.
Basic rate (20%):
2016/2017 tax year limit: £0 - £32,000
2017/2018 tax year limit: £0-£33,500
Higher rate (40%):
2016/2017 tax year limit: £32,001 - £150,000
2017/2018 tax year limit: £33,500 - £150,000
Additional rate (45%):
2016/2017 tax year limit: over £150,000
2017/2018 tax year limit: over £150,000
Dividends and tax allowances
Unlike other tax thresholds the dividend tax allowance is the same in the 2017/2018 tax year as the 2016/2017 tax year. However, this is a significant change in dividend tax from the 2014/2015 tax year which is what most people have become familiar with.
When it comes to dividends the first £5,000 is tax free, after this the tax thresholds are as follows:
Basic rate band - 7.5%
Higher rate band - 32.5%
Additional rate band - 38.1%
Although dividend tax has effectively increased it is worth noting that Corporation tax is set to decrease to 17% over the next few years.
Upcoming changes 2017/2018
Further details on the tax credit rates and thresholds for 2017/2018 can be found on the government website. However, taxes and tax thresholds can be tricky and it’s always best to consult with an accountant or tax specialist if you’re not 100% certain about what applies to you. Feel free to call the Chichester Accountants on 01243 532490 or email firstname.lastname@example.org if you need a hand.
This blog was written by Monica Jervis, small business owner, founder of the Chichester Accountants and qualified accountant. If you’ve got any questions don’t hesitate to get in contact on Twitter, Facebook or Google+.
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