Are you excited? What about? The start of the new tax year of course! Well okay, maybe entering a new fiscal year isn’t as interesting as the summer weather we have all been enjoying or the upcoming royal wedding, but it is still important – particularly for small business owners. Here are the top nine numbers you need to know to see you through the next twelve months.
1. £7,475 (the personal allowance for those under 65 years)
The personal allowance is the amount of income you can earn before you have to start paying income tax. The good news is that the personal allowance increased by £1,000 with effective from 6 April 2011. What’s more, the Government has announced that the personal allowance will increase to £8,105 in 2012.
However, the bad news is that the threshold at which tax payers start paying income tax at 40% has reduced to £35,000. This increases the need, for those individuals that own and run a limited company, to consider the how best to extract profits from the business – whether that be through salary, pension or dividends.
2. 20% (the new corporation tax threshold)
Corporation Tax is based on the taxable profits of limited companies and other organisations. The rate of corporation tax for organisations with “small profits” will decrease to 20% as of 1 April 2011. HMRC defines “small profits” as profits of up to £300,000, where the company has no associated companies.
3. 45 pence (approved car mileage allowance)
The approved mileage rates are available where an employee (or sole trader) uses his or her private vehicle for business purposes and is reimbursed by the business for their work-related mileage. Provided the amount reimbursed by the business does not exceed HMRC’s published rates, there is no income tax to pay. (Where reimbursement is lower than that allowed by HMRC’s rates, the employee may claim a deduction from their income tax calculation for the balance.)
The approved mileage rates for 2011-12 have been increased to 45 pence per mile for the first 10,000 business miles, followed by 25 pence per mile for each subsequent mile. These rates apply to all cars and vans.
4. £73,000 (the VAT threshold)
The VAT threshold, which determines whether a business must be registered for VAT, has increased from £70,000 to £73,000.
If your turnover of “VAT-able” goods and services supplied within the UK for the previous 12 months is more than the current registration threshold, or you expect it to go over the threshold in the next 30 days alone, you must register for VAT.
However, if your turnover has gone over the registration threshold temporarily then you may be able to apply for exception from registration.
5. 13.8% (Employer’s class 1 NI)
Several important changes to NI were announced in advance and took effect on 6 April 2011. The rates of NI will all increase by one percentage point. For instance, employers will have to pay 13.8% instead of 12.8% on salaries and benefits.
From the individual’s point of view, this is equivalent to an increase of 1% in the rate of tax: salaries will be charged at 12% (and 2% for income over a certain level) instead of 11% (and 1%). Likewise, self-employed profits will be charged at 9% and 2% instead of 8% and 1%.
6. £10,680 (the ISA limit)
On 6 April 2011 the annual Individual Savings Account (ISA) limits increased. The overall ISA subscription limit is now £10,680, of which up to £5,340 can be put into a cash ISA.
7. 10% (Entrepreneur’s relief)
Entrepreneurs’ Relief reduces the amount of the Capital Gains Tax payable when disposing of your business (as long as you have met the qualifying conditions throughout a one-year qualifying period). The entrepreneur’s relief allows business owners to pay an effective 10% capital gains tax rate when a business is sold, up to a lifetime “allowance”. This allowance has been increased to £10 million from April this year.
8. £10,600 (the capital gains tax annual exempt amount)
Each tax year nearly everyone who is liable to Capital Gains Tax gets an annual tax-free allowance – known as the ‘Annual Exempt Amount’. You only pay Capital Gains Tax if your overall gains for the tax year (after deducting any losses and applying any reliefs) are above this amount. The exempt amount has been increased to £10,600 from 6 April 2011.
9. £50,000 (annual allowance for tax relief on pension savings)
The level of contributions that can be made with full tax relief to a registered pension scheme has been reduced from £255,000 to £50,000 per pension input period (PIP) (which is typically a year).
However, this cap can be expanded by bringing forward unused relief from the previous three tax years, up to a maximum of £50,000 from each year. If you exceed the annual allowance, you must pay an annual allowance charge on the excess at your highest rate of income tax.
