Tax & admin · 15 May 2018

Taking the new tax rules into account: From digital reporting to VAT and pensions

Making Tax Digital
The switch to a fully digitised tax system has been pushed back until at least 2020
With the new tax year in full swing, chief FreeAgent accountant, Emily Coltman, explains the most important tax changes for this coming 2018/19 tax year you need to know about if you run a small business.

The new tax year kicked off on April 6 2018, bringing with it a range of previously-announced rule changes.?

Making Tax Digital: time to get ready

Is your business registered for VAT and does it have to be registered because its?salesare over the threshold Making Tax Digital?(MTD) reporting for VAT will become compulsory from 1 April 2019 for all businesses who are, and have to be, registered for VAT.

Why is this relevant now? If you prepare your accounts to 31 March every year and you’re not yet using digital software to keep your books, 1 April 2018 would be the best time to move across to a digital system so that you’re ready and prepared for MTD to start, because an?accounting year endis the easiest time to switch system.

If you’re trying to get to grips with a new bookkeeping system and a new filing method at the same time, it will make life harder for you, so we suggest you get ready early!

Dividend allowance falls

6 April 2018 sees the 0 per cent tax allowance for?dividendsfall from 5, 000 to 2, 000 a year. That means if you are a sole director/shareholder of a limited company and you withdraw money from the company in a mixture of salary and dividends, your tax bill may go up. Do talk to your accountant about tax planning.

Pension contributions going up for the first time

There is an increase in the minimum contributions for automatic enrolment pensions, with the current combined minimum contribution of 2 per cent rising to 5 per cent. As before, the employer and the employee can choose to pay more than the minimum contributions if they want to.


Employer minimum contribution

Employee minimum contribution

Total minimum contribution

Before 5 April 2018 1 per cent 1 per cent 2 per cent
6 April 2018 to 5 April 2019 2 per cent 3 per cent 5 per cent
6 April 2019 onwards 3 per cent 5 per cent 8 per cent

VAT registration threshold stays the same

The?VAT registration thresholdusually rises every year at the beginning of April, but this year it’s not going to. The Autumn Budget 2017 held the VAT registration threshold at 85, 000 for a further 2 years, starting from 1st April 2018.

This represents a decrease in the threshold in real terms, since inflation is still rising.

Scottish rates of income tax changes

If you’re a Scottish taxpayer, you’ll suddenly be subject to several more rates of?income tax?than anyone in the rest of the UK.

Here are the new Scottish rates of income tax that will apply from 6th April 2018, for taxpayers who receive the standard UK Personal Allowance;


Band name


£11, 851 13, 850 Starter rate 19 per cent
£13, 851 24, 000 Basic rate 20 per cent
£24, 001 43, 430 Intermediate rate 21 per cent
£43, 431 150, 000 Higher rate 41 per cent
£150, 001 and over Top rate 46 per cent



Emily Coltman is chief accountant to FreeAgent, provider of cloud accounting software for freelancers, micro businesses and accountants. She is passionate about helping the owners of small and growing businesses to escape their ?fear of the numbers? and she translates small business finance and tax into practical common sense speak.

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