The 2015/16 tax year has begun and with this comes changes to the tax system within the UK. Churchill Knight’s Personal Tax team have identified the key points, and explain how these could affect you as a contractor.
10. Individuals over the age of 55 gain flexible access to pension savings
Are you over 55 years old? Did you know that the restrictions to access the money you have paid into your pension fund has been removed?The first 25% of your pension savings can be withdrawn, and remains tax free. Any further amount(s) will be taxed at your marginal rate. These changes give you greater control over your financial affairs and future planning.
9. Income tax Personal Allowance increases to £10,600
Your income tax Personal Allowance is the amount that you can earn each year tax-free. The allowance has increased by £600 to £10,600.
8. The higher rate income tax threshold increases to £42,385
Highly paid contracting professionals, whose annual income exceeds the higher rate income tax threshold, will benefit from an extra £520 of their income being taxed at the lower rate. The higher rate now kicks in at £42,385. Any income above this new threshold will continue to be taxed at 40% (or 32.5% if it is a dividend income).
7. New Marriage Allowance comes into effect
Commencing on the 6th April 2015, individuals who are married or in civil partnerships are able to share part of their annual income tax Personal Allowance with their partner. As long as one individual is a non-taxpayer within the UK, that person is able to transfer up to £1,060 of their unused allowance to their partner (10% of their allowance). If this applies to you, you can now earn an extra £1,060, tax free, each year.
6. The starting rate of savings income tax is removed
Since the 6th April 2015, if your total income (e.g. wages, pension, benefits and savings income) is less than your personal allowance, plus £5,000, you are eligible to register with your bank or building society for tax-free savings.
If you are a contractor earning over £15,600 you may still be able to take advantage of these tax-free savings. E.g. if your spouse or partner earns less than £15,000 in a tax year, you could keep a certain amount of your savings in your partner’s account, taking advantage of their savings income tax allowance.
5. The Cash ISA limit increases £15,240
Cash ISAs appeal to many as the interest that accrues within them remains tax free. The downside is that there is an annual limit to the amount that you can invest in an ISA. This saving option has become even more attractive since the considerable rise in the limit from the 2013/14 tax year, as shown in the chart below.
4. The Help to Buy ISA will be introduced in August 2015
This year, the Chancellor announced the new ‘Help to Buy ISA’; good news for those of you looking to get onto the property ladder for the first time. This new scheme allows you to save up to £200 per month, with the government providing a bonus of 25% to the amount that you have saved. They will continue to provide this bonus until you reach the maximum of £12,000 worth of savings. This could result in you receiving a bonus of up to £3,000 to help you to buy your first home.
3. Employers National Insurance contributions (NICs) abolished for employees under the age of 21
Do you employ staff under the age of 21? If so, you are no longer liable to pay NICs for them.
Prior to this year’s Budget, employers were required to pay 13.8% of the employee’s salary (after the employee’s gross earnings reached the NI threshold of £7,956 per annum) in the form of NICs.
This change to NICs could influence an increase in the employment of the younger generation.
2. The annual Capital Gains Tax exemption has increased to £11,100
The threshold at which you are required to pay tax on the profits you receive from selling assets such as rental properties or shares, has increased to £11,100. This represents an increase of £100 since 2014/15.
Although only a small increase, this allows you to earn an extra £100 before having to pay tax on the profits you have made. Capital Gains Tax rates remain at 18% and 28%.
1. Company car tax rates have increased up to a maximum of 37%
Company car tax rates have increased once again for the 2015/16 tax year.
Tax that you pay for taking this ‘Benefit in Kind’ is dependent on 3 points:
- Your income
- The value of the car
- The car’s CO2 emissions
This increase to tax on company cars may result in company cars becoming less appealing to those contractors who are looking to purchase or lease a car through their limited company. These increasing rates result in an individual’s personal tax bill becoming higher each year.
However, it is not all bad news for contractors. If you chose to use your own car to get to and from your place of work, you are able to claim back 45p per mile as expenses. Please read our ‘On the Road: Claiming Mileage’ article for further information.
If you would like to discuss any of these changes, or would like to find out more about how Churchill Knight’s services could benefit you, request a call back today from one of specialist consultants.
Visit our next blog for a full breakdown on the Marriage Allowance and how it could affect you.
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