What is a Personal Allowance?

Posted on Oct 1st, 2018 | Tax

Crunch - What is a Personal Allowance? - Freelancer with tattoos looking at bills

Despite those old adverts insisting that tax doesn’t have to be taxing, the sad truth is that it can often be brain-achingly complex. There’s bucket-loads of jargon to deal with, and one of the terms you’ll hear more frequently is the Personal Allowance.

Thankfully, the Personal Allowance is one element of accounting and tax that’s actually not that difficult to understand. Allow us to elaborate.

Tax-free Allowance

You’ll sometimes hear the Personal Allowance referred to as your “tax-free allowance”, which probably describes it better.

The Personal Allowance is the amount you’re allowed to earn in a given tax year (tax years run from 6th April and 5th April) before you start paying Income Tax.

For employees, the Personal Allowance will be taken into account automatically when the employer runs their payroll.

What is the Personal Allowance for the 2018/19 tax year?

For the 2018/19 tax year the Personal Allowance is £11,850.

How does the Personal Allowance affect the self-employed?

For sole traders, your Personal Allowance will be taken into account when HMRC calculates your tax liability when you file your Self Assessment.

Limited company employees will have to take their Personal Allowance into account when running their own payroll or – more likely – use a piece of payroll software that does it automatically!

The Personal Allowance is just one of many allowances and thresholds that might affect you. Our article “Tax rates, thresholds and allowances” has all the information you need.

What if I need a payroll service?

Crunch can provide a payroll service for directors and employees. Our software will automatically calculate and file your payroll with HMRC and produce payslips for you to keep.

Crunch Basic clients receive this service for directors paid up to the National Insurance threshold, which is £8,424 in the 2018/19 tax year.

Expanding businesses using our Crunch Plus package can add a total of up to 10 employees (including directors) to their payroll. If you need payroll for more than 10 employees then you’ll need to look at our Crunch Premium service for small businesses.

Our Real-Time Information payroll can be set up in minutes and meets all HMRC requirements, letting you expand your business safe in the knowledge that you’re staying compliant.

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Written by Jon Norris

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