Personal tax allowance: exceptions

Personal tax allowance: Exceptions

Personal tax allowance: exceptionsThough the personal tax allowance can give you savings on your income up to £11,850, there are many other ways of saving more money due to the numerous special circumstances and exceptions laid out by HMRC. Allow the tax experts at Tax Agility to guide you through the most important ones.

Tax on savings interest

Most people can earn some interest from their savings without paying tax. The starting rate for tax savings is £5,000 but is subject to certain conditions. The amount that you don’t have to pay tax on depends on your primary income and personal tax allowance:

  • If your primary income is £16,850 or more - You’re not eligible for the starting rate for savings.
  • If your primary income is less than £16,850 - Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.

Remember that this applies to with a personal tax allowance of £11,850. If your personal tax allowance is higher, then the bands are calculated by adding £5,000 to your own personal tax allowance and using that value instead. Additionally, you are entitled to an extra £1000 of tax-free income if you are a basic rate taxpayer, called personal savings allowance. This is cut to £500 if you’re a higher rate taxpayer, with additional rate taxpayers getting no allowance.

Tax on dividends

You may get a dividend payment if you own shares in a company. You only have to pay tax if your dividends go above your dividend allowance in the tax year. The dividend allowance was calculated differently before 06 April 2016, but it has since been changed to a fixed amount each year. Depending on which tax band you are in you can have different rates of tax:

  • Basic rate – 7.5%
  • Higher rate – 32.5%
  • Additional rate – 38.1%

As of 2018/19, there is an allowance of up to £2,000 for dividend income with anything above that taxed according to the above rates. The dividend income must be added to any other taxable income when calculating what you need to pay.

Tax on property and trading income

There are two aspects to tax on property and trading income, both with restrictions, but both allowing £1,000 of tax-free income if you pass. The first aspect concerns income from trading, obtained explicitly from any of the following sources:

  • Self-employment
  • Casual services such as babysitting or gardening
  • Hiring personal equipment such as power tools

If you receive income from these sources, then £1,000 of it is tax-free. Furthermore, if your total gross annual income from trading is less than £1,000, then you don’t need to inform HMRC.

The second aspect concerns income from rented properties. Up to £1,000 of income from these properties is tax-free. However, if the property is jointly owned, then both owners get £1,000 of tax-free income on their individual shares, rather than the income of the house as a whole.

Tax relief

Tax relief occurs when you are repaid tax (or charged less tax overall) for money spent on specific things. It applies primarily to pension contributions, charity donations and maintenance payments, although, you may also use it if you are self-employed or use your own money for travel and necessary equipment for your job. You can also claim tax relief if you have income from working on a ship outside of the UK. Full details about the requirements are on the government income tax relief information page.

Marriage allowance

Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner if they earn more than you. There are several restrictions on this, and you can only benefit from it if:

  • You are married or in a civil partnership
  • You do not pay income tax (or your income is lower than your personal allowance)
  • Your partner pays income tax at the basic rate, which usually means their income is between £11,851 and £46,350

Overall this can reduce their tax by up to £238 in the tax year. Note that you should call the HMRC if you either receive other income such as dividends or savings or if you are a Scottish taxpayer.

Making sense of tax allowances with Tax Agility

Many of the tax allowances overlap or are conditional on each other, making it a challenge to understand. At Tax Agility, our tax allowance specialists can translate the financial jargon and assist you in applying for tax allowances to get maximum savings.

To find out if you’re missing out on beneficial tax allowances that can help you to save even more money, give our chartered accountants a call on 020 8108 0090. Alternatively, you can use our Online Form.

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Small steps

How to grow your business: Taking small steps

Small steps

Many business owners believe that business growth is an easy, straightforward path from small to large and often fall into the trap of trying to grow too quickly too soon. This attempt at rapid business growth usually results in problems like losing track of finances and ineffective business operations.

In reality, business growth is a series of small steps that make manageable improvements to your business.

In this post, the business growth experts at Tax Agility explains the small steps you need to take to grow your business successfully.

Put more trust in your staff / Share responsibilities with staff

When you start, it’s common to oversee everything and keep total control over your company’s actions and decisions. However, you will eventually need to share responsibility as your company grows too large for one person to oversee.

As you grow, you would have hired staff to assist in the specialist operations of your business like a salesperson or marketer. Encourage them to take the initiative and give them more responsibilities. This will allow them to generate new ideas and efficient methods of doing things. They may even feel inspired to go that extra mile for the company by helping others and doing more than what was asked of them.

Having a core team of trusted individuals will make your expansion and business operations that much smoother.

Review and refine

Most business owners understand the importance of audits, but a surprising amount of them don’t act upon the information these reports provide. It’s easy to assume your business is perfect when the numbers are going up, but don’t fall into the trap of complacency.

Improvement doesn’t happen overnight as it’s a slow process of constant refinement. A business will never have a perfect, evergreen business strategy because the market is constantly changing, and staying the same will see you quickly pushed out. Get into the habit of challenging your standards, re-evaluating what your business does and constantly asking the question “is this the best we can do?”

Don’t wait until you face a hurdle to begin reviewing your current business operations and strategies. Adapt and refine as you go, and you’ll stay one step ahead.

Don’t rush into large investments

As the saying goes, you need money to make money. Rapid growth requires a lot of initial capital and one of the best ways to get it is through investment. However, as a small business, it can be difficult to secure essential funding.

Walk before you run. Small investments may seem ineffective, but they can help to set your company on a good growth trajectory, giving your business the appeal needed to attract more substantial investments. Smaller investments allow you to assess risks and identify potential problems before proceeding to wager large amounts of money. Investors look for many things in a company, but financial safety is close to the top of their list.

You can find out more about different sources of investment in our articles How to grow your business: Investors and How to acquire funds for your business.

Review your business infrastructure

There are two aspects to this. The first is the physical side: more products require larger storage space, and extra staff requires a larger office. The other aspect is how your business is structured and how your departments communicate and split up work.

It’s not enough to review one aspect and ignore the other. You must consider how the two interact and how they can contribute to business growth effectively. Do you need to hold regular cross-departmental meetings, or can your staff use online conference calls? Do your different departments need to be close together? It’s far easier to address these problems as a small business than as a large one, so take advantage of your business size while you can.

Look to the business growth specialists

Never be afraid to seek help. At Tax Agility, our accountants have years of hands-on experience in growing businesses, and we will show you the best direction to take when expanding your operations. We provide bespoke assistance with payroll services, accounting and bookkeeping among other things to ensure that you can focus on fulfilling the potential of your business.

To find out more about business growth for startups and SMEs, get in touch on 020 8108 0090 or use our Online Form.

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Income tax rates

Personal tax allowance: Income tax rates

Income tax rates

Your personal tax allowance denotes how much you can earn without being charged income tax. Even if you go over this allowance, you will only be taxed on earnings above it. However, this amount changes each year, and it’s worth knowing what you’re paying, especially when it comes to doing tax returns. The tax accountants at Tax Agility can show you what you need to know.

How much can you save?

Before anything else is calculated, you must first figure out your personal tax allowance. As this changes each year it’s best to check the government website, but for 2018/19 the bands and payments are as follows:

  • Earning under £100,000 – You are entitled to £11,850 of tax-free income
  • Earning between £100,000 and £123,700 – The £11,850 allowance decreases by £1 for every £2 you earn, until it reaches £0
  • Earning more than £123,700 – You are not entitled to any tax-free income

Note that if you are blind, then you are entitled to an extra £2,390 of tax-free income on top of any that you already have.

Constantly changing

If you’ve visited the HMRC website, you may notice that every year is listed as having different tax rates. The tax year begins on 06 April, and any changes are made on that date. Consequently, the tax bands are re-evaluated each year and the Chancellor of the Exchequer’s budget is taken into consideration when calculating the new rates. This is why it’s advisable to hire professional tax accountants like us, as each year the optimal way of paying tax must be recalculated.

The tax bands

If you have a personal allowance, there are specific tax bands that you fall into, separate from the normal ones. They are:

  • Personal Allowance – This band concerns you if you earn up to £11,850. You pay no tax if you fall into this band.
  • Basic rate – If you earn between £11,851 and £34,500, then you fall into this band. You pay a tax of 20%.
  • Higher rate – If you earn between £34,501 and £150,000, then you fall into this band. You pay a tax of 40%.
  • Additional rate – If you earn over £150,000, you fall into this band. You pay a tax of 45%.

There are several exceptions to these, such as Income Tax Relief and Marriage Allowance, but otherwise, this is the main thing that you need to know. Note that these rates only apply if your personal tax allowance is exactly £11,850, and if you claim benefits such as Blind Person’s Allowance then the rates can vary. More information can be found on the government website here.

Tax is our speciality

At Tax Agility, our personal tax accountants are experienced in providing proactive personal tax services. Tax laws are complicated and change regularly, and getting someone to sort it out for you can save you a great deal of time and stress.

To find out how we can sort your tax issues out, talk to one of our personal tax accountants on 020 8108 0090 or use our Online Form.

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How to grow your business: The human elements

Most small businesses start with an idea and not much else. As an entrepreneur starting out you have to set up everything, see through every delivery and worry about where each penny is being spent. But sooner or later the business will grow too large for you to do everything yourself, and you will need some help to bring the company forward.

A successful business is built on a strong, flexible team of staff that can face the challenges with you. This week in our “How to grow your business” series, we’re focusing on how to manage your employees to ensure that you get the best out of them.

A leader first; a friend second

There's a temptation for small business owners to want to be friends with employees, particularly in an intimate setting like a start-up. However, this will only lead to problems further down the line.

By being overly friendly with employees, you will make things difficult for yourself. You will struggle with accountability and avoid conflict because you don't want to upset your friend, even if they are actively hurting your business This is no good for you, your business or your employees.

Running a small start-up is not too dis-similar from parenthood. You're at the head of the house; it can be a loving house where the 'kids' are encouraged to succeed and where their input is valued, but ultimately it's your house, and that house goes by your rules. In a business setting, you also have a responsibility to foster the development of your employees just as a parent has the responsibility for helping their child grow. It's not about being liked all the time, but it’s about setting boundaries that are good for everyone.

Don't shy away from human resources

The acronym 'HR' doesn't exactly inspire most entrepreneurs. Some view it as yet another hat that they have to wear on their already crowded head, while others roll their eyes at such 'corporate speak' that they feel will set themselves against their small team. But here's the thing: HR doesn't need to be de-personalised, nor does it need to be adversarial. In fact, good HR should be present in every start-up because it helps to set procedures and governance.

HR starts with the hiring process. If you hire smart, you can separate out the ones that want responsibility from the ones that are counting down the hours until they can go home. If you have a team who buys into what you are doing with your start-up, then there's a good chance that they can be trusted with your responsibilities. HR can help with creating a really powerful job description that will attract people who want to work for your business, not for your money.

HR can also include training to help your team develop and grow. Team-building exercises can improve their skillset and enable them to work better with each other.

Retention is important

It’s cheaper to keep hold of existing employees than to find new ones. Recruitment is rather costly across the UK – you can spend anything from £300 on advertising costs to a few thousand pounds if you rely on an employment agency. After hiring, you need to pay national insurance, pension and equipment costs, as well as absorbing the time the new staff takes to learn and get up to speed. It can be easy to underestimate the costs, especially since they tend to go up each year, while your revenue may remain the same. If you need help with allocating your budgets to manage expenses relating to your staff, come and talk to us. We have helped many small business owners across London thrive through our small business management consulting services.

Giving your staff opportunity to grow can help to retain them. Fostering a positive environment, listening to their feedback and having constructive dialogue during one-to-one performance reviews are all things you can do to keep your employee turnover down.

Build a stable dream team

The key to effectively managing the human element of your business begins with having the right profile for the position in advance. Save yourself time, money and effort by specifying the role as clearly as you can and writing down the important attributes the person must have to fulfil the role. Don’t be afraid to look at apprentice and recent graduates either, some of them are eager to learn and be successful.

There's no doubt that the process of good hiring, training and retention techniques costs money and time, neither of which are always in abundance in many start-ups. However not following this process could cost you far more in the long run.

Business growth advice from Tax Agility

At Tax Agility, we are chartered accountants specialising in small businesses across London. We’ve helped many entrepreneurs grow from a one-person business to a successful enterprise with dedicated teams in place. If you would like to know more about what we can do to help grow your business, get in touch on 020 8108 0090 or use our Online Enquiry Form.

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