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?
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:|
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)|
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
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:
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:
Photo by 401(k) 2012