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It’s been widely acknowledged that these changes will see millions of employed people paying less tax. James Foster from accountancy, First Freelance, examines if the news is as positive for the UK’s self-employed workforce?
James Foster writes:
If you’re a contractor, freelancer or small business owner, some of the latest changes, which came into force from April 6, 2019, will impact you directly. To help you get up to speed, we’ve put together a rundown of the things you need to be aware of most:
Personal allowance
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.
Dividend allowance
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 per cent if you're a basic rate taxpayer, 32.5 per cent for a higher rate, and 38.1 per cent 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.
Pensions contributions
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.
Corporation Tax
This remains payable at 19 per cent of company profits. However, the Government is planning to reduce this in the 2020/21 tax year to 17 per cent, 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.
The digitalisation of the VAT process is part of a Government drive to help small businesses manage their tax affairs better, but it's received plenty of criticism and many businesses are not sure what they need to do to comply. There’s more information about Making Tax Digital on our website here.
Article provided by www.firstfreelance.com.
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Susie Hughes © Shout99 2019
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