Welcome to the new tax year, fellow freelancers. Just to keep us on our toes HMRC has gone and changed a load of rates, as they tend to do.

The various rates and thresholds apply depending on your legal setup (sole trader / limited company / umbrella company) – if you’re not sure consult someone with a better head for figures (your accountant, perhaps).

So, what changes is our beloved Government inflicting on us in 2014/15?

Personal Allowance

This is the amount a UK worker (under the age of 65) can earn in a single year before they begin to incur Income Tax. This year the Government will finally hit its long-promised target of a £10,000 tax-free allowance.

In 2014/15 the Personal Allowance is: In 2015/16 the Personal Allowance will be:

£10,000

£10,400

Income tax

Once you’ve exhausted your Personal Allowance, you must pay Income Tax on salary at various levels. This year, those levels are –

Taxable earnings Income Tax rate
£0 – £31,865 20% (Basic Rate)
£31,866 – £150,000 40% (Higher Rate)
£150,001+ 45% (Additional Rate)

National Insurance

The self-employed pay Class 2 and Class 4 National Insurance Contributions. For 2014/15 these are –

Profits National Insurance Rates (Employee’s NI)
£0 – £5,885 None – but you must apply for a Class 2 exemption
£5,885 – £7,956 Class 2 – £2.75 per week
£7,956 – £41,865 Class 2 – £2.75 per week
Class 4 – 9% of profits in this bracket
£41,865+ Class 2 – £2.75 per week
Class 4 – 2% of profits in this bracket

Corporation Tax

The vast majority of limited company freelancers will be paying the Small Profits Rate of Corporation Tax (which applies to businesses with with profits less than £300,000).

Currently (as it has been for a while) the Small Profits Rate is:

20%

VAT Registration threshold

If your turnover goes above the VAT Registration threshold in the last twelve months (on a rolling basis – not by tax year) you must register for VAT. This applies to all freelancers, no matter what your setup.

For 2014/15 the VAT Registration threshold is:

£81,000

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