Income Tax

Income tax rates for employment income

2018 – 2019
2017 – 2018
Basic rate band – income up to
£34,500
£33,500
     Starting rate for savings income
*0%
*0%
     Basic rate
20%
20%
     Dividend ordinary rate
**7.5%
**7.5%
Higher rate – income between
£34,501 – £150,000
£33,501 – £150,000
     Higher rate
40%
40%
     Dividend upper rate
**32.5%
**32.5%
Additional rate – income over
£150,000
£150,000
     Additional rate
45%
45%
     Dividend additional rate
**38.1%
**38.1%
Starting rate limit (savings income)
£5,000
£5,000
*Not available if the taxable non-savings income exceeds the starting rate band. £1,000 of savings income for basic rate taxpayers (£500 for higher rate) may be tax free.

**The first £2,000 of dividends are tax-free (£5,000 2017/18).

 Scotland income tax rates for employment income

2018/19 2017/18
Band £ Rate % Band £ Rate %
0 – 2,000 19 0 – 31,500 20
2,001 – 12,150 20 31,501 – 150,000 40
12,150 – 31,580 21 Over 150,000 45
31,581 – 150,000 41
Over 150,000 46
2018 – 2019 
2017 – 2018 
Personal Allowance (PA) 
£11,850 
£11,500 
 (Reduce personal allowance by £1 for every £2 of adjusted net income over £100,000.)
Marriage Allowance
£1,190
£1,150
 10% of the PA may be transferable between certain spouses where neither pay tax above the basic rate.
Married Couple’s Allowance (MCA) (relief 10%)
*£8,695 
*£8,445 
Either partner born before 6 April 1935
Minimum amount  £3,360 £3,260
Reduce MCA by £1 for every £2 of adjusted net income over £28,900 (£28,000).

Pensions

Under the pensions auto-enrolment regime, employers have a duty to automatically enrol all eligible jobholders into a pension scheme from the employer’s staging date. The annual earnings trigger for eligible jobholders is £10,000 for 2018 -19. Employers may calculate the pension contributions in a number of ways.

Where the employer works out the amount due based on a band of earnings between thresholds (the lower limit is £6,032 and the upper limit is £46,350 for 2018-19), the minimum overall contribution payable will be 8% of the employee’s qualifying earnings, of which at least 3% must be paid by the employer.

The contribution will be phased in as follows:

Up to 5 April 2018 
6 April 2018 – 5 April 2019
From 6 April 2019
Employer 1%
2%
3%
Employee 1%
3%
5%
Please note that employee contributions are gross (including tax retained at source).
 
 

Approved Mileage Rates

Employees who use their own cars or vans for business purposes may be reimbursed using HMRC’s approved mileage allowance payments: 45p per mile for the first 10,000 miles and 25p thereafter.

Income tax and NICs may be due on higher reimbursement rates and tax relief may be available on lower rates.

Advisory fuel rates apply to employees using company cars – contact us for the latest rates.

Childcare

Employer supported childcare (ESC), such as childcare vouchers, may be offered in addition to employees’ pay or as a reduction in pay (commonly known as salary sacrifice). Under salary sacrifice the employee gives up pay, which is taxable and NIC-able, in return for childcare vouchers, which may not be. This may also save NIC for the employer.

The government has introduced a new Tax-Free Childcare (TFC) system, which is now open to all eligible families and operates via an online childcare account. Unlike ESC, the scheme is open to both employed and self-employed parents.

ESC was set to be closed to new entrants from April 2018, with members of existing ESC schemes being able to choose to remain in their existing scheme or switch to the new TFC scheme. The government has since announced that ESC will remain open to new entrants for at least a further six months beyond April 2018. Contact us for the latest position.

Student Loan Repayment

Type of loan
Repayment threshold
Type 1
£18,330
Type 2 £25,000

Deductions for student loan repayments are made at a rate of 9% for the proportion of earnings above the relevant threshold.

National Minimum Wage

Apprentices* Age 16-17 Age 18-20 Age 21-24 25 and over
National Minimum Wage £3.70 £4.20 £5.90 £7.38
National Living Wage £7.83
*Rate applies to apprentices under 19, or 19 and over in the first year of apprenticeship.

Statutory Redundancy Pay

Employees may be entitled to statutory redundancy payments if they have been continuously employed for at least 2 years.

Age
Number of weeks’ pay
Each complete year of service aged below 22
1/2
Each complete year of service aged 22-40 1
Each complete year of service aged 41 or above 1 1/2

A statutory limit of 20 years’ service applies. The current statutory maximum pay is £508 per week.

Selected Rates

Basic Retirement Pension
 
– Single person
£125.95
– Couple £201.45
New State Pension £164.35

Statutory Pay qualification – average weekly earnings (AWE) £116 or over.

Sick (SSP) The standard rate is £92.05 per week for up to 28 weeks.

Maternity (SMP), Adoption (SAP), Paternity (SPP) and Shared Parental Pay (ShPP) paid at the lower of £145.18 or 90% of AWE apart from first 6 weeks of SMP and SAP which are paid at 90% of AWE.

SMP and SAP are payable for up to 39 weeks. ShPP is payable for up to the balance of the untaken SMP period. SPP is payable for up to 2 weeks.

National Insurance Contributions

Class 1
Employee (primary)
Employer (secondary)
Payable on weekly earnings of:
 
 
     Below £116 (lower earnings limit)
Nil
     £116 – £162 (primary threshold)
*0%
     Up to £162 (secondary threshold) Nil
     Above £162 13.8%
     £162.01 – £892 (upper earnings limit) **12%
     £162.01 – £892 (under 21s and apprentices under 25)
0%
     Above £892
**2%

*No NICs are actually payable but notional Class 1 NIC is deemed to have been paid; this protects contributory benefit entitlement.

**Over state pension age, the employee contribution is generally nil.

Employment Allowance
up to £3,000 (per year)
Class 1A On relevant benefits 13.8%
Class 3 Voluntary
£14.65 per week

Key Dates & Deadlines

Payment of PAYE and Class 1 NICs must clear by 22nd* of the month following the end of the tax month to which it relates.

Where estimated average monthly PAYE payments are less than £1,500, it may be possible to pay quarterly rather than monthly.

31 May
Issue P60s to employees
6 July Forms P11D and P11D(b) – and appropriate copies to employees
19/22 July
Payment of 2017-18 Class 1A NICs
19/22 October
Payment of 2017-18 Class 1B NICs as part of a PAYE settlement agreement
30 December Self Assessment Tax Return Online where outstanding tax (subject to cap) to be included in 2019-20 PAYE code

Under Real Time Information (RTI), most employers need to notify HMRC of payments and deductions made under PAYE on or before the time of payment.

*or the last bank working day before 22nd unless paying by Faster Payment. Cheques must be received by 19th.

Tax Codes

Tax codes are used to calculate the amount of tax to deduct from an employee’s pay or pension. A tax code normally consists of several numbers and a letter, eg 1185L. Multiplying the number by ten will indicate the total amount of income that can be earned before paying tax. The letter shows whether the code includes one of the standard allowances, as follows:
Code
Usage
L Those eligible for the basic personal allowance; also emergency tax codes
T
Other calculations are required to work out the personal allowance
K When total allowances are less than total deductions
BR All income is taxed at the basic rate
S Taxed using the Scottish income tax rates and bands
N Taxpayers who are ‘transferors’ under the Marriage Allowance
M Taxpayers who are ‘recipients’ under the Marriage Allowance
OT Personal allowance has been used up or a new employee does not have a P45/tax code
D0 All income is taxed at the higher rate
SD0 All income taxed at the Scottish higher rate
D1 All income is taxed at the additional rate
SD1 All income taxed at the Scottish additional rate
NT No tax is to be taken from an income or pension

For general guidance only. No responsibility is accepted for action taken or refrained from as a result of this information.