New Tax Year – NHF Highlights Changes For Hair & Beauty Businesses
The new tax year brings with it a raft of changes to pension contributions, personal allowances and income tax (with additional changes in Scotland) and dividend taxation. Plus, the new National Minimum Wage / National Living Wage rates came into effect on 1 April. Here’s what you need to know!
Employees who pay into auto-enrolment pensions will have to pay a minimum of 3% (up from 1%) while employer contributions will rise from 1% to 2%. Further increases for employers and employees will come into effect in April 2019.
Personal allowances determine how much can be earned before having to pay income tax. This figure has increased from £11,500 to £11,850, which will mean a tax cut of £70 for most people.
Higher Rate Income Tax
The level at which people will need to start paying a higher rate of 40% tax has risen from £45,000 to £46,350.
For the first time, Scottish tax payers will have different rates to England and Wales. The £11,850 personal allowance is the same, but the first £2,000 of earnings after that are taxed at 19% rather than 20%. After that, it’s 20% tax until earnings hit £24,000, when it rises to 21%. Then above £43,430 the rate is 41%, with a top rate tax of 46% on earnings over £161,850.
A strategy for many self-employed people is to set up companies to take payments and pay out expenses, then pay themselves a dividend from the profits. This allows for income and therefore income tax bills to be minimised. Previously, self-employed hair and beauty professionals were able to earn £5,000 a year from dividend income before paying tax, but this figure has been reduced to £2,000.
For further information on the new tax year changes visit: Gov UK here.