We are now in the new 2018/19 tax year and a number of changes have been made to tax thresholds and rules which affect contractors, freelancers and small business owners. It is important to keep up with changes in order to manage your finances and remain tax efficient. To help, we’ve put together a quick guide to some of the changes for this financial year.
Personal allowance and income tax thresholds
Good news, your personal allowance has increased in this financial year. You now have a tax free amount of £11,850, which is up from £11,500. For many of us that is a saving of £70. Once you reach income of £100,000 your personal allowance will decrease as in previous years, at a rate of 50p per £1 over this amount.
The minimum earnings for the higher rate income tax of 40% has also increased, now at £46,350 (including the personal allowance) – up from £45,000 in 2017/18. In real terms, if you are a director and shareholder in a limited company and paid £46,350 in dividends, you will reduce your tax bill by £337.50 this year.
For earnings above £150,000, the tax rate is 45%. This remains unchanged from last year. This year Scottish income tax thresholds and values are different.
Self-employed National Insurance
National insurance contributions (NIC) for those who are self-employed have slightly changed in 2018/19. The small profits threshold, where you start paying NIC, has increased to £6,205 (from £6,025). The limit for Class 2 NI is now £8,424 (up from £8,164), and earnings above this and up to a limit of £46,350 incur further Class 2 and Class 4 NICs of 9%. Profit above this incurs further NI.
Dividend allowance
Unfortunately, dividend allowances have taken a significant cut in 2018/19. For freelancers, contractors and small businesses working through a limited company, your threshold will now be £2,000, which is down from £5,000. This equates to an additional £225 in income tax if you are currently a basic rate tax payer paying 7.5% on dividends.
Capital Gains tax
The Capital Gains exempt amount has increased to £11,700, from £11,300. This rate has increased in line with the Consumer Price Index which measures inflation and prices for goods and services, so while you are making some savings this will likely be offset with costs.
Student loan
Many freelancers, contractors and small business owners pay a student loan. The income thresholds for repaying both Plan 1 and Plan 2 have changed in 2018/19. This means that you will have to earn more before paying back any loan.
| Plan | 2018/19 | 2017/18 |
| Plan 1 | £18,330 | £17,775 |
| Plan 2 | £25,000 | £21,000 |
VAT registration level
The earnings rate for when you have to register for VAT remains at £85,000 in 2018/19.
Get help managing your finances
It can be a time consuming task to keep up with tax changes and ensure that you apply them correctly. It is vital for small business owners, freelancers and contractors to understand these changes in order to maximise savings.
Working with an accountant can help you through this process.
AJN Accountants are specialists in helping contractors, freelancers and small businesses to save tax and time.
Please contact us for more information:
E: [email protected]
T: 020 3866 8951
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