From Friday nearly all taxpayers will have a basic standard personal allowance of £11,850. This is £350 more than last year and saves a basic rate taxpayer £70 over last year. This also means that the standard tax code will be 1185L. Couples both earning below the higher rate threshold will be able to transfer up to ten percent of their allowance to the other partner.
Higher rate taxpayers have the entry threshold now at £46,350, this is £1,350 above last year and will save them £270 in tax on top of the £70 extra from the increased personal allowance, a total of £340.
Every year the threshold at which the old plan one student loans deduction kicks in is increased. This year the plan two student loan will get a major increase to its threshold. Plan one loan deductions will now be 9 percent over £18,330. This is £555 above last year, saving up to £50 over the year. Plan two loans will see a £4,000 jump in the threshold saving up to £30 per month or £360 over the year.
A plan two graduate on £22k this year will pay £191 less in total deductions compared to last year. £90 of that reduction is due to the change to the student loan deduction threshold.
For those with businesses, or the self employed who normally take dividends from their company, there is a sharp decrease in the tax-free dividend allowance. Last year it was £5,000, it is now £2,000. Additionally, the plan to remove Class 2 national insurance contributions (£2.95 per week) has been deferred for one year to April 2019. This applies to anyone with self employed earnings over £6,205.
Devolution of tax powers is making major changes to Scottish tax for the first time. Last year there was just the slightly adjusted higher rate threshold compared to the rest of the UK. From Friday there will now be five bands of tax for Scottish taxpayers ranging from 19% to 46%. Powers are being devolved to Wales from April 2019 for setting income tax rates so expect big changes there in a year.
The minimum wage was increased to £7.83 an hour for people age 25+ yesterday. People between 21 and 24 should be paid a minimum of £7.38, and those between 18 and 20 £5.90. Under 18's minimum wage is £4.20 an hour. First year apprentices or apprentices under 19 year's old should be paid a £3.70 hourly minimum.
The living wage for 2018 is set at £10.20 an hour in London and £8.75 everywhere else. This is adhered to by 3,000 employers across the UK.
The government launched their tax-free childcare account system last month to replace childcare vouchers. Parents are advised to sign up and regularly check their account to receive their 20 percent top-ups on contributions they make to the account (top-ups of up to £2,000 per child - increasing to £4,000 for disabled children). This is on top of 30 hours of free childcare, childcare tax credits and schemes under universal credit.
People looking to increase their income in 2018, or maybe adding an additional income source/a second job can use our tools to see what they will take home from the increased pay. A trading allowance is also available so if your turnover for eBay/online selling or renting rooms out is below £1,000 no income needs to be declared for tax purposes.
Read our end of 2017 tax year tips to make sure you have made the most of last year's tax allowances, reliefs and more.
All of our calculators are ready and updated for the new tax year. Here are the full rates and thresholds for 2018.