Tax rates and allowances are constantly evolving year on year, with 2018/19 being no different. April 2018 will see an increase in many tax rates and allowances that you as a sole trader should be aware of. These upcoming changes will have an impact on your business finances and cashflow, so we want to make sure that you know exactly how they will affect you.
1) Personal allowance
Many us are entitled to a personal allowance each tax year. This is the amount of money we can earn before we start paying income tax. For the 2017/18 tax year this allowance was £11,500. For the 2018/19 tax year this allowance will be £11,850. This is an increase of £350.
2) Income tax thresholds
In addition to getting an additional £350 at 0% income tax, the Government has also made an increase to the basic rate threshold. This means that you can earn more before having to jump into the higher rate band. For the 2017/18 tax year the total amount you could earn before paying higher rate tax was £45,000. In the 2018/19 tax year you will be able to earn £46,350 before paying tax at the higher rate. This is an increase of 1,350.
3) Class 2 national insurance rate
You are required to make class 2 national insurance contributions to HMRC if you have self employment profits exceeding £6,025 in a tax year. In 2017/18 the contribution amounts were £2.85 per week, but from April 2018 this will increase to £2.95 per week. That is an annual increase of £5.20
The Government plan is to abolish class 2 national insurance contributions with effect from 6 April 2019. We will keep you updated on this change nearer to the time.
4) Class 4 national insurance threshold
Sole traders pay class 4 national insurance contributions at based on their profits in each tax year. The rate of class 4 contributions are remaining stable at 9% for basic rate taxpayers and 2% for higher rate taxpayers. However, the 0% threshold is increasing from £8,164 to £8,424. This is an increase of £260. This means that you can now earn more before being subjected to contributions.
Considering all the changes listed above, it would appear that the Government are making very positive steps to encourage sole traders to continue operating. They have made it easier for you to earn more money and pay less tax which can’t ever be a bad thing!
To see the full list of rates, thresholds and allowances for 2018/19 please see the HMRC website at https://www.gov.uk/government/publications/autumn-budget-2017-overview-of-tax-legislation-and-rates-ootlar/annex-a-rates-and-allowances