The Tax Changes Freelancers Need To Know

Being self-employed means you really need to pay attention to any changes to tax regulations that are made at the start of the tax year. As with any other year, the changes to the rules will affect your earnings so it’s key to have an understanding of them early. Rather than forcing you to sit through pages and pages of information you may or may not need to know, we’ve outlined the key changes anyone that is self-employed must be aware of.

Personal Allowance and Higher Rate Increases
The new tax year will see ones personal allowance (the amount you earn before you start paying tax) increase from £11,500 to £11,850. Also, the higher rate threshold is increasing from £45,000 to £46,350; however the highest bracket still remains at £150,000.

Dividend Allowance Slashed
Dividend allowance refers to the governments attempt to align how the employed, self-employed and shareholders pay tax. If one who is self employed pays themselves a dividend through your company, the allowance to which you’re allowed before you start to pay tax has dropped from £5,000 to £2,000. Remember, the rate of dividend tax you pay depends on which tax band the sum of your total dividends falls into.

Class 2 and Class 4 Thresholds Increase
If you make over £6,205 (up from £6,025 last year), you will need to pay Class 2 National Insurance contributions, which has also increased to £2.95 per week from £2.85 per week. The threshold for Class 4 contributions has also risen from £8,164 to £8,424; being self-employed means you’ll pay 9 per cent of profits between £8,424 and £46,350 per year, and then an additional 2 per cent of anything you earn above that.

Capital Gain Tax Allowance Increases
Capital Gains Tax refers to the tax on profit you make when you sell something that has increased in value. Up from £11,300 last year, you can now make £11,700 tax-free when you sell assets that qualify for Capital Gain Tax. Lower rate taxpayers pay 10 per cent on profits above the allowance whereas higher and additional rate taxpayers pay 20 per cent.

Business Rates Linked to CPI not RPI
Phillip Hammond, Chancellor of the Exchequer since 2013, has brought forward the change of business rates to be measured on the lower Consumer Prices Index (CPI) measure of inflation, rather than the Retail Prices Index (RPI), by two years. RPI was measured at 3.9 per cent in September last year, compared to CPI being just 3 per cent.

These are all the main changes you need to know. We should also point out that in 2018, HMRC rolled out an invitation for sole traders to join it’s Making Tax Digital pilot, giving the self-employed the change to submit regular Income Tax updates digitally, rather than completing an annual Self Assessment tax return. You can join the pilot by using your Government Gateway user ID and password and logging in to the online Self Assessment service. The ISA allowance remains at £20,000 and don’t forget about the Personal Savings Allowance, allowing basic-rate taxpayers to earn £1,000 in savings tax-free. It’s always good to stay ahead of the game!