12 April 2018

What you need to know this tax year

The 2018-19 tax year is just beginning. You can make your money work harder this year by understanding how tax affects you.

Tax planning can help reduce your personal tax liability and increase your net income. If you make your finances more tax-efficient, you'll save money by legally reducing how much you have to pay and claiming any allowances you may be entitled to.

Personal tax allowances

The  (This link will open in a new window)new tax year brings a rise in earnings before income tax is due, up from £11,500 to £11,850, for up to £70 extra net income.

If you're married or in a civil partnership and one of you earns under £11,850 and the other is within the basic rate band, you may be able to transfer up to £1,185 of your personal tax allowance to your partner, saving them up to £238 in income tax.

If you are a basic rate taxpayer, income between £11,850 and £46,350 is taxed at 20%. Higher rate taxpayers pay 40% income tax on earnings between £46,351 and £150,000 and additional rate taxpayers pay 45% on any income above £150,000. Higher rate and additional rate taxpayers have their personal allowance reduced by £1 for every £2 of net adjusted earnings above £100,000. This means their personal allowance is zero if their income is £123,700 or above.

The tax rates and bands are slightly different in  (This link will open in a new window)Scotland.

Tax codes

Most people will have a tax code of 1185L for 2018-19. This is the individual personal allowance and means you can earn £228 per week or £988 per month before any income tax is charged.

To make sure you're on the right tax code when you begin a new job, give your new employer your P45, so they use the correct pay and tax details for you when you start.

Your tax code can be different if you receive benefits in kind from your employer, like a company car or medical benefit. The value of these benefits is taken from your tax code, reducing it, enabling a more accurate amount of tax to be paid in year rather than at the end of the tax year.

For certain professions you can have a tax-free allowance included in your tax code. An example of this is for the cost of repairing or replacing a specialist uniform that's required for your employment.

Self-employed workers

Tax allowances and rates are the same if you're self-employed, but you must calculate your own tax liability through self-assessment and submit your tax return online. You must pay any tax due by the deadline of 31st January 2019 for 2017/18.

If your tax bill is above £1,000, you'll have to make a payment on account for the 2018/19 tax year of 50% of your tax bill for 2017/18.

You then pay the balance by the following year's deadline of 31st January 2020.  (This link will open in a new window)Self-employed workers may be able to claim further allowable expenses.

National Insurance (NI) contributions are more complicated if you are self-employed. Until April 2019, you normally pay two types of NI - Class 2 and Class 4. From April 2019, only Class 4 NI contributions are payable.

For this current tax year, 2018-19, Class 2 NI is charged at £2.95 per week for profits above £6,205. There is no charge if profits are below this. Class 4 NI contributions are also due and are charged at 9% on profits between £8,424 and £46,350 and 2% on profits above £46,350.

Tax calculators

If you want to check you've paid the right amount of tax, you could use a tax calculator. These can be useful as long as you enter the right information. Both  (This link will open in a new window)MoneySavingExpert and  (This link will open in a new window)Which? have excellent tools. There are other products and apps as well It might be a good idea to use two different tax calculators to check your figures.

Tax rebates

You may qualify for a tax rebate if you've been taxed using the wrong tax code or have stopped working before the end of the tax year and not used all of your personal allowance.

If you're employed, you'll be given a P60 by 31st May, which shows pay and tax details, so you can check if you've paid the right amount of tax.

If you've overpaid and are due a tax rebate, you won't get it automatically. If you've paid the wrong amount of tax, HMRC will post you a tax calculation. This can be via form P800 or a Simple Assessment letter which will tell you how to apply for a refund or pay any further tax that is due. You can also claim back tax by filling in a form R40.

If you're self-employed or complete a Self-Assessment tax return, timings are different because you wait until you've submitted your return. Once done, to claim a repayment, log in to your HMRC online account, go to 'Self-Assessment details and options', select 'more options' and click 'Request a repayment', and follow the instructions.

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