The start of the new tax year is just around the corner and like with any new tax year there have been several changes that the self-employed will have to get to grips before the 2019/20 tax year begins on the 6th April.
These changes can have an impact on your business and it’s earnings so it’s vital to understand them sooner rather than later.
These can range from an increase to the personal allowance to an increase to the national living wage, to highlight the changes here’s a run through to help you stay a step ahead.
Personal Allowance & Higher Tax Threshold
Similar to those who are employees, the self-employed personal allowance for the year will be increased from £11,850 to £12,500 for 2019/20, which means you will be able to earn upto that amount before any tax will be due.
For those who’s income is in the higher tax bracket the 2019/20 higher tax threshold has also been increased from £46,350 to £50,000 after which you will begin to pay the higher rate of tax on your profits.
Remember as a self-employed individual it is important to note that you will pay tax on your profits after any allowable deductions, for more information on the most common expenses you can use to offset your income check out our guide here
National Living Wage Increase
Whilst not strictly a change for the tax year there will also be an increase to the National Living wage introduced on the 1st April 2019. The minimum hourly rate employees are entitled to will depend on their age and if they are an apprentice.
- For 25 year olds and over the hourly rate will increase from £7.83 to £8.21
- For 21-24 year olds the hourly rate will increase from £7.38 to £7.70
- For 18-20 year olds the hourly rate will increase from £5.90 to £6.15
- For under 18’s the hourly rate will increase from £4.20 to £4.35
- For apprentices the rate increases from £3.70 to £3.90
If you are an employer it is also important to note that the contributions made to your employee’s pension will also be increased from 2% to 3% (with the employee’s contributions also increasing from 3% to 5%)
There will be no change to the dividend allowance and will remain at £2,000 for 2019/20. However it is worth noting that the increase to the tax thresholds mean that you can take more in dividends before you will have to pay the higher tax rate.
Self-Employed National Insurance Contributions
The new tax year also will see an increase to the National Insurance contributions and thresholds for 2019/20, which will affect both self-employed individuals and limited company directors.
- Small profits threshold – 2019/20 will see this increase from £6,205 to £6,365 after which you will begin to pay class 2 NIC’s.
- Class 2 NIC’s – the flat rate will rise from £2.95 per week to £3.00 for 2019/20
- Class 4 NIC threshold and limits – the threshold before you being to pay these will increase from £8,424 to £8,632 for 2019/20 after which you will pay 9% on anything over that threshold upto £50,000
Employer NIC’s (limited company directors)
Limited company directors are classed as employees and have to pay employer National Insurance contributions.
- Secondary threshold – 2019/20 sees this increase from £8,424 to £8,632 (you’ll pay employer NICs of 13.8 per cent on annual salary payments above this threshold)
Capital Gains Tax Increase
The new tax year will see the Capital Gains Tax annual exempt amount for individuals increase from £11,700 to £12,000 for 2019/20.
Basic rate taxpayers pay 10 per cent of Capital Gains Tax on profits above the allowance. Higher and additional rate taxpayers pay 20 per cent.
For more information about Capital Gains Tax check out our ultimate guide here.
Annual Investment Allowance (AIA)
Companies will be able to claim £1 million as AIA for expenditure incurred between 1st January 2019 and 31st December 2020 on fixed assets such as plant and machinery.
With the new tax year only a matter of days away if you require any further information or would like to take adavantage of any of our services make sure to contact us.