We’re now four months into the new tax year, which has seen the introduction of several big changes including some notable increases in tax thresholds. It’s been widely acknowledged that these changes will see millions of employed people paying less tax, but is the news as positive for the UK’s self-employed workforce?
If you are self-employed some of the latest changes, which came into force from April 6 2019, will impact you directly. To help you get up to speed, James Foster from First Freelance has put together a rundown of the things you need to be aware of most:
The 2019/20 tax year has seen the personal allowance rise from £11,850 to £12,500. The higher rate threshold also increased from £46,350 to £50,000 in England, Wales and Northern Ireland.
If you pay yourself in dividends through your limited company, the allowance remains at £2,000. This means you get to earn £2,000 as dividends before paying tax. Beyond this, you’ll pay tax on dividends at 7.5% if you’re a basic rate taxpayer, 32.5% for a higher rate, and 38.1% for an additional rate.
Student loan threshold
The Department for Education confirmed changes to student loan repayments, which mean that earning thresholds have increased as follows:
- Plan 1 has increased from £18,330 to £18,935.
- Plan 2 has increased from £25,000 to £25,725.
It’s important to remember that the threshold for repayment is based on total income, so for company directors that will be salary and dividends combined.
The lifetime allowance has increased from £1,030,000 to £1,055,000. Annually, the amount that can be contributed is £40,000 and that figure has not changed from the previous tax year.
This remains payable at 19% of company profits. However, the government is planning to reduce this in the 2020/21 tax year to 17%, which would be welcome news for the UK’s small business owners, as well as contractors and freelancers.
Making Tax Digital
Since April 1 2019, businesses with a turnover of more than £85,000 must now submit their VAT returns through the government’s new Making Tax Digital system. Those that are VAT registered but have an annual turnover below the VAT threshold will not be required to keep digital records or to file accounts using MTD compliant software until April 2020 or later.
- Thanks to James Foster, Commercial Manager at specialist accountancy provider First Freelance, for this article