The government has lived up to its commitment to raising the lowest amount a person needs to earn before they start paying tax – along with several other important changes to the tax code. We’ve collected all of the information together that may affect anyone who is an independent contractor or owns a small business to keep everyone up to date.
The latest legislation came into force on April 6, 2019, and the biggest change for most working people is the amount they can earn before paying Income Tax was, which was increased to £12,500 from £11,850. This will lead to a small reduction in the tax people pay each year, around £130 a year on average.
On the other end of the scale, the threshold for paying the 40% higher tax rate will increase to £50,000 from £46,350. This also includes the increase on the amount you earn before paying tax, so for people on the higher bracket, it’s a double win. The additional top tax threshold remains unchanged at £150,000.
Another thing that will affect sole traders and limited companies is how the National Insurance contribution thresholds have changed for the current tax year. The small profits threshold has increased from £6,205 to £6,365 for 2019-20. You start paying Class 2 NICs if you earn more than this threshold. When you pass into the second tier the flat rate has increased from £2.95 per week to £3.00 per week.
In some good news for small businesses, you can now sell assets for £12,000 tax-free when you sell that qualify for Capital Gains Tax which is up from £11,700 in 2018-19.
The last two major changes are firstly, the minimum amount you need to pay into your employee’s auto-enrolment workplace pension has been increased. This means the total amount of employer and employee contributions must be a minimum of 8% of your employee’s qualifying earnings, up from 5% last year.
Secondly, business rates for companies with a rateable value of £51,000 or less will be reduced by a third between 6th April 2019 and 31st March 2021 in order to help struggling high streets.
Finally, it is worth mentioning corporation tax, which is payable on business profits remains at 19%, but the government has committed to reducing this to 17% in the 20/21 tax year.
For assistance with your personal tax, company tax issues or any tax reporting matters, please feel free to contact MCC Accountants. We are always happy to give clear advice especially for those who are unfamiliar with the UK tax legislation.