Personal Allowance

Personal allowance means amount of money that you can earn before you start to be taxed. In UK Tax system, tax on your personal income is levied when you cross the limit specified by HMRC. Any taxpayer whose earnings are below the specified limit in a particular tax year is not eligible for paying income tax. It is known as Personal Tax Allowance or a tax free allowance. Income tax is always levied on the amount over and above the limit specified by HMRC. Certain individuals are entitled for a larger personal tax allowance as compared to others. It includes blind peoples, married couples in which at least one of the member was born before 6th April 1935 and if you are above 65 years.

Personal Tax allowance is considered as good news for UK citizens but considered as major disappointment to Her Majesty’s Revenue & Customs (HMRC) because it is the money which you are allowed to earn without paying any income tax on it. However, personal tax allowance in UK is not fixed for everyone.

Personal Tax Allowance Generally Depends on Two Factors:-
  1. Your age.
  2. Your total income
How much tax you pay in one particular tax year depends on two factors:-
  1. How much of your income is over & above your Personal Allowance?
  2. How much of your income falls within each tax band?
For example:-

Steve works as a freelance web designer and he wants to understand how much tax he has to pay for the year 2018-19.

In order to understand this, he needs to know two important things:-
  1. His personal allowance for the year 2018-19 and
  2. His total income for the year 2018-19.

If his net total income for the year 2018-19 is £50,000 and his personal allowance entitlement is £11,850. In this case, his taxable profit is:

£50,000 - £11,850 = £38150 i.e. Steve will pay income tax only on £38,150 rather than paying on £50,000.

What is Personal Tax Allowance

Personal Allowance and Income Limit Comparison

Personal Allowance and Income Limit starting from 2012-13 to 2019/20
Tax Year Personal Allowance Income Limits
2019-20 £12500 £1,00,000
2018-19 £11,850 £100,000
2017-18 £11,500 £100,000
2016-17 £11,000 £100,000
2015-16 £10,600 £100,000
2014-15 £10,000 £100,000
2013-14 £9,440 £100,000
2012-13 £8,105 £100,000

In the year 2018-19, UK Government increased the tax free allowance for year 2019-20 by £650 and this step is for sure a huge relief for the families having low income whereas the upper limit on income i.e. £100,000 remains the same.

Tax Free Personal Allowance for tax year 2019-20

The standard tax free personal allowance for tax year 2019-20 is £12500. This is the income on which you do not have to pay tax on.

In case you claim marriage allowance or blind person’s allowance, your personal allowance may be bigger whereas it is smaller if your income is above £100000.

UK Tax rates thresholds and allowances

Income Tax Rates & Bands 2019-20

Income Tax Rates & Bands for the Tax Year 2019-20 Are As Follows – strong
Bands Taxable income Tax rate
Personal allowance Up to £12500 0%
Basic rate £12501 to £50000 20%
Higher rate £50001 to £150000 40%
Additional rates Over £150000 45%

You are not eligible for personal allowance on taxable income above £125000

Other Allowances

Allowances 2019 to 2020 2018 to 2019
Married Couple’s Allowance (minimum amount) £3450 £3360
Married Couple’s Allowance (maximum amount) £8915 £8695
Blind Person’s Allowance £2,450 £2,390

Income Tax Rates & Bands after Allowance deduction for 2019 to 2020

After deduction of allowances, tax is paid on the amount of remaining taxable income for which the table is given below –

Band Rate Income after allowances 2019 to 2020 Income after allowances 2018 to 2019
Starting rate for savings 10% (0% from 2015 to 2016) Up to £5,000 Up to £5,000
Starter rate in Scotland 19% Up to £2,049 Up to £2,000
Basic rate in Scotland 20% £2,050 to £12,444 £2,001 to £12,150
Basic rate in England & Northern Ireland 20% Up to £37,500 Up to £34,500
Basic rate in Wales 20% Up to £37,500 Up to £34,500
Intermediate rate in Scotland 21% £12,445 to £39,930 £12,151 to £31,580
Higher rate in Scotland 40% (41% from 2018 to 2019) £30,931 to £150,000 £31,581 to £150,000
Higher rate in England & Northern Ireland 40% £37,501 to £150,000 £34,501 to £150,000
Higher rate in Wales 40% £37,501 to £150,000 £34,501 to £150,000
Top rate in Scotland 46% Over £150,000 Over £150,000
England & Northern Ireland Additional rate 45% Over £150,000 Over £150,000
Wales Additional rate 45% Over £150,000 Over £150,000

Income Tax Rates, Thresholds and Changes for 2019/20

Income Tax Band 2019/2020 2018/2019
Basic rate – It is applicable on those persons whose income lies in the lowest income tax band 20% on earnings between £12,501 and £50,0001 (you pay tax on £37,500) 20% on earnings between £11851 and £46,3501 (you pay tax on £34,500)
Higher rate – It is applicable on those persons whose income lies in the middle income tax band 40% on earnings between £50,001 and £150,0001 40% on earnings between £46,351 and £150,0001
Additional rate – It is applicable on those persons whose income lies in the highest income tax band. 45% on earnings above £150,0001 45% on earnings above £150,0001

Dividend Tax Rates

There is no change in dividend tax rates for 2019/20. An individual can avail amount of £2000 as tax free dividend allowance.

Tax payers Dividend percentage
Basic rate taxpayers 7.5%
Higher rate tax payers 32.5%
Additional rate tax payers (From April 2013) 38.1%

Scottish Income Tax Rates, Thresholds and Changes For 2019/20

    2019/20 tax year 2018/19 tax year
Band name Tax Rate Bands and Thresholds*
Starter rate 19% £12,500* – £14,549 £11,850 – £13,850
Basic rate 20% £14,550 – £24,944 £13,851 – £24,000
Intermediate 21% £24,945 – £43,430 £24,001 – £44,273
Higher rate 41% £43,431 – £150,000 £44,274 – £150,000
Additional rate 46% Over £150,000 Over £150,000

Note – Scottish residents are receiving personal allowance on tax free income of £12500 for 2019/20 tax year. The personal allowance is reduced by £1 for every £2 eared over £100000. It is applicable on rest of the UK.

National Insurance Rates

National insurance contributions are generally calculated on weekly basis rather than annual basis. National insurance rates are sometimes very confusing as things are also different for sole traders, employees and limited company directors.

Employee National Insurance Contribution Table

Employee National Insurance contributions 2019/20 2018/19
Weekly Annually Weekly Annually
Lower Earnings Limit – Individuals whose Earnings are below this specified limit will incur no NICs £118 £6,136 £116 £6,032
Primary Threshold – Individuals whose earnings are below this specified limit will incur no NICs £166 £8,632 £162 £8,424
Upper Earnings Limit – Individuals whose earnings are above the Primary Threshold limit and below the upper Earnings Limit will be taxed at 12%. £962 £50,000 £892 £46,350
Individuals earning above the upper Earnings Limit will be taxed at 2%

Employer National Insurance Contribution

Employer National Insurance contributions 2019/20 2018/19
Weekly Annually Weekly Annually
Secondary Threshold – Employees Salary payments above this threshold limit will incur Employer NICs at 13.8%. £166 £8,632 £162 £8,424

Self-Employed National Insurance Contribution

If you are self-employed, you need to pay national insurance contribution on your income for availing benefits like state pension & universal credit.

Self-employed national insurance contributions are as follows
  2019/20 2018/19
Small profits threshold – Individuals earning below this threshold will incur no NICs. £6,365 £6,205
Class 2 NICs – Individuals who are earning above the Small profits threshold £3.00 per week £2.95 per week
Lower Profits Limit – Individuals Earnings up to this limit will incur only Class 2 NICs. Over this limit incurs Class 4 NICs. £8,632 £8,424
Upper Profits Limit – Individuals earnings up to this limit will incur: Class 2 NICs Class 4 NICs at 9% of the profit between the Lower Profits Limit and Upper Profits Limit. £50,000 £46,350
Earnings above the Upper Profits Limit Any earnings above this limit will incur: Class 2 NICs Class 4 NICs at 9% of the profit between the Lower Profits Limit and Upper Profits Limit Class 4 NICs at 2% of the profit above the Upper Profits Limit. Over £50,000 Over £46,350

Capital Gains Tax

Capital gains tax is basically a tax you need to pay on the profits when you sell an asset that’s increased in value. It’s the profit you have to tax not the amount of money you are receiving on selling an asset.

Capital Gains Tax Rates

Capital Gains Tax Rates 2019/20 2018/19
Annual exemption from capital gains £12,000 £11,700
As a basic rate
taxpayer
Gains from other residential property 18% 18%
Gains from other chargeable assets 10% 10%
As a higher rate
taxpayer
Gains from other residential property 28% 28%
Gains from other chargeable assets 20% 20%
Entrepreneurs’ Relief (the lifetime limit on relief is £10 million) 10% 10%

Company Tax Rates

Company tax rates are the rates at which taxes are paid by a company

Corporation Tax Rates

Corporation tax is the tax paid by limited companies on their profits.

  2019/20 2018/19
Corporation Tax rate 19% 19%

VAT Registration

You must go for VAT registration if your VAT taxable turnover exceeds £85000. You can also register for it voluntarily if your turnover is below £85000.

  2019/20 2018/19
VAT Registration threshold – You must do VAT registration, If your turnover exceeds the specified limit of £85000 £85,000 £85,000

General VAT Rates

  2019/20 2018/19
Standard – The VAT rate which is applicable on most of the goods and services 20% 20%
Reduced rate – The lower VAT rate which is applicable on certain goods and services 5% 5%
Zero rate – The VAT rate applicable on some of the goods and services (food, children’s clothes etc.)
Note: this is not the same as items which are exempt from VAT
0% 0%

Mileage Allowance

You can claim business mileage as expenses. Therefore, HMRC approved mileage rates as well as thresholds at specific rates to be availed as allowances are as follows –

Vehicle types First 10,000 miles Over 10,000 miles
Car / van £0.45 £0.25
Motorcycle £0.24 £0.24
Bicycle £0.20 £0.20

Director Loan Rate

A director loan is a loan borrowed by a director from the company except salary, dividend etc.

Loan amount 2019/20 and 2018/19
If the loan amount exceeds the specified limit of £10,000 at any point of time during the year Nominal interest of 2.5% is to be levied on the whole amount plus Class 1A National Insurance contributions (13.8%) and you may need to report it on your P11D form.

How DNS helps?

DNS Associates is one of the leading UK firm with more than 10 years of experience in advising individuals about income tax rates chargeable & personal allowances availed to/by the taxpayers during a year.

For free consultation, you can call our DNS accountants at 03330602481 or e-mail us at info@dnsaccountants.co.uk

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