We know. Being self-employed can mean you’ve got a whole load of plates to spin. Getting to grips with some pretty big tax changes for the self-employed will help make sure they don’t come crashing down.
From an increase in personal allowance to digital taxation, here’s our list of the tax changes that every self-employed plate-juggler should know in 2019.
In 2019, you may just feel a little extra jingle in your pocket. That’s because the amount you can earn before you start paying your tax is going to increase from £11,850 to £12,500. This cheeky little 5.5% increase means we could, on average, all be £130 better off than we were in 2018. Hooray!
And it doesn’t stop there; the higher rate tax threshold is also on the rise. This means you can earn £50,000 before you pay a higher rate of tax on your profits. While tax is different in Scotland, this trend of a small rise in allowances also applies. Good news all round!
Or is it?
That little extra jingle might not be quite as loud as we all hoped. As a self-employed grafter you’ve got Class 2 contributions (a flat weekly amount), and you’ve got Class 4 contributions (a percentage of your total earnings). In 2019 you won’t have to pay any NICs at all if you earn less than £6,365. Success.
If you earn between £6,365 and £8,632, you’ll need to pay Class 2 contributions of £3 a week – a gentle little increase from the £2.95 of last year.
But the real hike comes for earnings of between £8,632 and £50,000. At this point you’ll need to make 9% Class 4 contributions, plus 2% of whatever you earn above that. So, if your business is kicking-on and you earn above £50,000, your balancing act continues.
While a rise in the income tax threshold means you may pay a little less tax, some of that precious saving may get gobbled up by a hike in National Insurance Contributions for the self-employed.
Talking about savings, 2019 will be the third year on the trot that your self-employed ISA allowance is frozen at £20,000.
Your self-employed ISA allowance is the total amount you can save in a tax-free way – whether that is cash only, a flutter on stock and shares, or a mix of them both. While there is nothing extra for those of us saving for a rainy day, your self-employed ISA will still offer you one of the most useful and flexible ways to save.
While not strictly speaking a tax change, a 4.9% increase in the national living wage is a change worth noting for any self-employed business owner with employees. This rise will see the national living wage go from £7.83 to £8.21 - a potential pay increase for the average full-time worker of around £690 a year.
You’ll need to factor in the new costs below:
Year |
25 and over |
21 to 24 |
18 to 20 |
Under 18 |
Apprentice |
| 2019 | £8.21 | £7.70 | £6.15 | £4.35 | £3.90 |
If you make a living buying and selling goods, then you’ll get a little extra breathing space through an increase in your capital gains tax allowance.
Capital gains tax is what you pay on the profits you make selling shares, property or other assets. You get to earn a certain amount each year before you need to pay, and in 2019 you will be able to make £12,000 tax-free (up from £11,700 in 2018-19).
The good news is that the dividend allowance for 2019-20 has held firm at £2,000. This means you’ll get to earn £2,000 as dividends before having to pay tax, but it is a huge reduction from the heady days of 2017-18 when you could earn £5,000.
And finally, in 2019 the Government has a whopping great big plan to change how people file their tax returns - Making Tax Digital; a phrase you might be familiar with. We certainly are!
As if tax wasn’t tricky enough already, and what with Brexit in full swing too! If you have a turnover of more than £85,000 you are now expected to submit your VAT returns through a new system. You may need to invest some money, and certainly some valuable effort, to make sure you can file your VAT returns using software that is compatible with HMRC’s systems. While it is expected that HMRC will take a light touch approach when it comes to any new ‘penalties’, keeping up to speed will be vital to avoid a digital own goal in 2019.
This new scheme came into effect last month, so if you’re not familiar with it, contact us today to find out how we can help you with the transition.
There are still plenty of rules and regulations that must be followed. What you need is a no-hassle accountant who has got your back. Why not give us a shout to find out how we can help make your finances a whole lot easier. What are you waiting for?
