The New Personal Savings Allowance

The government is set to introduce a new personal savings allowance from 6th April 2016.

The allowance will enable basic rate taxpayers to receive up to £1,000 of savings income tax-free, whilst 40% taxpayers will be able to receive up to £500, resulting in a tax saving of up to £200 per year.

Because so many people will no longer pay tax on their savings, the automatic deduction of tax by banks and building societies will no longer be necessary.

Please note that the savings allowance will not be available to additional rate taxpayers, i.e. those with taxable income in excess of £150,000 per year.

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Update to Income Certification

Since the rules for obtaining a mortgage or loan have been tightened up, it has become increasingly difficult to obtain sufficient evidence of earnings for the application process.

Previously, many lenders would request an original HMRC ‘SA302’ tax calculation as proof of earnings. However, as HMRC were getting deluged with requests for these forms, they have devised a new process to enable individual taxpayers and Agents to access the forms themselves.

If you submit your tax returns yourself using the HMRC online filing software, you can print the documents yourself – the instructions can be found here.

If your accountant submits your tax returns on your behalf, they can print the forms for you.

Higher Rate Thresholds

The threshold for higher rate tax and the National Insurance upper earnings limit is to be increased for both the 2016-17, and the 2017-18 tax years.

The limit, currently set at £42,385, is due to rise to £43,000 from 6th April 2016, and again to £43,600 from 6th April 2017.  A typical higher rate taxpayer will benefit by £142 in 2016-17.

This will be the first time since 2010 that the higher rate threshold will go up by more than inflation, and it is planned that the limit will increase to £50,000 by the end of the current parliament.

Income Structure 2015-16

If you are a Director and majority shareholder of your own company, you get the privilege of deciding how much to pay yourself as salary!

But before you go taking every penny you can carry, remember that as long as the company is making a profit, you can also vote dividends, which can be far more tax efficient.

So how much do you pay yourself?

Well if you were born after 5th April 1948, your personal allowance (the amount you can earn free of tax) for 2015/16 should be £10,600, and providing you have no other income, that could be the optimal amount to pay yourself.

Assuming that you have no other taxable income, there will be no tax to pay on this level of salary, although there will be some liability for both Employee’s and Employer’s National Insurance.

However, the company should be entitled to an Employment Allowance of £2,000 for 2015/16 to offset against any Employer’s NI liability, on both your own, and any employees’ salaries.

Please remember that as individual circumstances differ, it is always worth seeking professional advice to determine the most tax efficient remuneration method for you