New Changes in Taxes for the Self Employed
If you are self-employed, there are a few changes on the taxes that you will be required to pay in 2018/2019 which will impact on your earning. You need to learn about these changes to help you understand how they will affect your income. The changes are:
Personal Allowances Changes
As from October 29th, personal allowance rate threshold for 2018/2019 was increased to £11,850 from £11,500. It means that any earning in excess of £11,850 will be subject to income tax. Also, the higher rate threshold was increased to £46,350 from £45,000 implying that anyone earning profits in excess of £46,350 will be required to pay a higher tax rate on their profit. However, the additional rate threshold has not changed and is still pegged at £150,000.
In Scotland, it will be different since residents will be expected to continue paying the 5 rates of tax. At the rate rates of 19-46%. So, anyone earning between £11,850- £13,850 will continue to pay a starter rate of 19%
Dividend Allowance Changes
2018/2019 tax change has resulted in a reduction in the dividend allowance threshold. The objective of these changes is to align the tax treatment of shareholders/directors, self-employed persons and people who are employed. Individuals who will be paying themselves a dividend through their companies will need to pay tax on earnings in excess of £2,000. Initially, the threshold was £5,000. The rate of the dividend tax paid will be determined by the tax band in which £2,000 falls.
Class 4 and 2 Changes
Any person who is self-employed and earns £6,205 per year will be required to pay a class 2 national insurance contribution at the rate of £2.95 up from £2.85 per week. Going by these changes, it means that individuals who earn more will be required to pay more to the National Insurance while those who earn less will, obviously, pay less. However, class 4 contributors have seen their threshold rise to £8,424 from £8,164. It implies that individuals who make profits of between £8,424 and£46,350 per year will pay 9% plus an additional 2% for earnings above £8,424.