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Tax Changes You Need To Know If You’re Self-Employed

As the saying goes, “nothing’s as certain as death and taxes”. Whilst all of us in working life are guaranteed to be taxed, there are always changes to tax rates, thresholds and wages that affect businesses and those who are registered as self-employed. We’re now in the tax year of 2019/20, so here’s some of what you need to know.

Personal allowance and increased brackets

A personal allowance is how much you can earn before you start paying income tax. In the 2018/19 tax year, the annual untaxable allowance was £11,850. However, with the 2019/20 changes, this allowance has been increased to £12,500.

For example, if you earn £20,000 a year, only £7,500 of your salary would be taxed at the basic rate of 20%, as the first £12,500 would be exempt.

The tax rate thresholds have increased also:

  • Basic tax rate of 20% – any income between £12,500 and £50,000 (previously, this was £11,850 to £46,350)
  • Higher tax rate of 40% – any income between £50,000 and £150,000 (previously, this was £46,350)
  • Additional tax rate of 45% – any income above 150,001, which means this hasn’t changed

As you’re self-employed, you pay tax on your profits, which is what you’ve earned after your expenses are deducted.

Changes to minimum wage

Do you have employees? You’ll need to bear in mind 2019/20 changes to minimum wage. With the personal allowance and tax brackets increasing, subsequently, the minimum wage has increased also:

  • Aged 25+ – hourly wages will go from £7.83 to £8.21
  • Aged 21-24 – wages will increase from £7.38 to £7.70
  • Aged 18-20 – hourly wage rates will increase from £5.90 to £6.15
  • Aged 16-17 – the minimum wage will go up from £4.20 to £4.35
  • Apprenticeship wage – increases 5.4 per cent from £3.70 to £3.90 per hour

National Insurance changes

National Insurance contributions have changed in most areas, affecting those who are self-employed also:

  • Small profits – this increases from £6,205 to £6,365 for 2019/20. You start paying Class 2 NICs if you earn more than this threshold.
  • Class 2 NICs – the flat rate increases from £2.95 per week to £3.00 per week for 2019/20.
  • Class 4 NICs – the earnings threshold before you start paying these NICs increases from £8,424 to £8,632 for 2019-20. Also, you’ll pay 9% of profits between £8,632 and £50,000 per year (up from £8,424 and £46,350), plus 2% of what you earn above that. This mainly affects those who are sole traders/self-employed.

Self-employed ISA allowance

For the third year in a row, those who are self-employed will find that the ISA allowance remains frozen at £20,000 for the 2019/20 tax year.

At AS Taxation, we are experts in taxes, accounting and bookkeeping. Get in touch with our experienced and friendly accountants in Guildford if you need advice regarding the new tax changes for 2019 or becoming self-employed.

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