Published in: Self Employed

Self Employed Tax Rates & Allowances

rates allowencesTax and National Insurance payments made to HM Revenue & Customs (HMRC) is different for a self-employed person to that of somebody working under pay as you earn (PAYE).

The actual rates of tax, allowances and rates of National Insurance for 2011/12 are detailed on the following page along with comparison tables from 2010/11.

If you would like Tax Advantage to help with your taxes please use the contact form and we will provide you with a no obligation quote.

As a self-employed person the tax and National Insurance you will have to pay to HM Revenue & Customs is different to that of somebody working under PAYE.

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The actual rates of tax, allowances and rates of National Insurance are as follows:

Tax Rates & Allowances

Allowances

2013-14

2014-15

Personal allowance born after 6th April 1948 (1)

£9,440

£10,000

Personal allowance born between 6th April 1938 and 5th April 1948

£10,500

£10,500

Personal allowance born before 6th April 1938

£10,660

£10,660

Married couple's allowance born before 6th April 1935

£7,915

£8,165

Married couple's allowance* - minimum amount

£3,040

£3,140

Income limit for age-related allowances

£26,100

£27,000

Blind person’s allowance

£2,160

£2,160

 

Income Tax - Taxable Bands

Rate 2013-14 2014-15

Starting rate savings 10%

£0-£2,790 £0-2,880
Basic rate band 20% £0-£32,010 £0-31,865
Higher rate band 40% (32.5% on dividends) £32,011-£150,000 £31,866-£150,000
Additional rate band 45% (37.5% on dividends) Over £150,000 Over £150,000

National Insurance Contributions

£ per week (unless stated)

2012-13

2013-14

2014-15

Lower earnings limit (primary Class 1)

£107

£109

£111

Upper earnings limit (primary Class 1)

Upper accruals point

£817

£797

£805

£770

£770

£770

Primary threshold

£146

£149

£153

Secondary threshold

£144

£148

£153

Employees’ primary Class 1 rate between primary threshold and upper earnings limit

12%

12%

12%

Employees’ primary Class 1 rate above upper earnings limit

2%

2%

2%

Employees’ contracted-out rebate - salary-related schemes

1.4%

1.4%

1.4%

Employees’ contracted-out rebate - money-purchase schemes

1.6%

1.4%

1.4%

Married women’s reduced rate between primary threshold and upper earnings limit

5.85%

5.85%

5.85%

Employers’ secondary Class 1 rate above secondary threshold

13.8%

13.8%

13.8%

Employers’ contracted-out rebate, salary-related schemes

3.4%

3.4%

3.4%

Employers’ contracted-out rebate, money-purchase schemes

N/A

N/A

N/A

Class 2 rate

£2.65

£2.70

£2.75

Class 2 small earnings exception (per year)

£5,595

£5,725

£5,885

Special Class 2 rate for volunteer development workers

£5.35

£5.45

£5.55

Class 3 rate (per week)

£13.25

£13.55

£13.90

Class 4 lower profits limit(per year)

£7,605

£7,755

£7,956

Class 4 upper profits limit(per year)

£42,475

£41,450

£41,865

Class 4 rate between lower profits limit and upper profits limit

9%

9%

9%

Class 4 rate above upper profits limit

2%

2%

2%

 

You pay tax on any profits over your personal allowance and you will pay Class 4 National Insurance on any profit over £7,755 for tax year 2013/14..

Should you have ‘employment’ under PAYE then your personal allowances will be used against this source of income first any unused personal allowances are then used against your self-employed profits.

Example:

Sam is a window cleaner and has a turnover of £25,000 a year, he incurs expenses of £5,000 and is left with a taxable profit of £20,000.

Lets see what tax he has to pay:

Profit £20,000

Less

Personal allowances £9,440

Taxable profit £10,560

The tax due on the profit is £10,560 @ 20% = £2,100

Next we need to calculate how much Class 4 National Insurance they need to pay:

Profit £20,000

Less

Class 4 lower profits limit £7,755

Profit subject to N.I. £12,245

Class 4 National Insurance due on the profit is £12,245 @ 9% = £1,102.05

By the 31st January following the end of the tax year Sam would need to pay £3,202.05 in tax and National Insurance to HM Revenue & Customs. However, it doesn't quite end there.

Under Self Assessment HM Revenue & Customs take the view that what ever you owe them for one tax year you will owe a similar amount for the next tax year and if this is over £1,000 then you may need to make ‘payments on account’, towards the next tax year.

Sams total tax and National Insurance is  £3,202.05 for tax year ending 5th April 2010 as the amount is more than £1,000 this means they need to make payments on account towards the 2013/14 tax year.

The whole £3,202.05 is used as the basis for calculating the payments on account which is simply 50% of the tax due. The payments on account in this case are £3,202.05 / 2 = £1,601.02

The total Sam needs to pay HMRC by 31st January 2014 is £3,202.05 tax and National Insurance plus the 1st payment on account for tax year 2013/14, total payable £4,803.07.

Sam will need to make the second payment on account towards the 2013/14 tax year by 31st July 2014.

It is important when you budget for tax you do make provision for payments on account.

Payments on account are just an estimate of your potential tax for the next tax year,if your business ceases or you know your profits will be lower you can make a claim to reduce the payments on account to a figure you believe will reflect the tax that will be due. If you make a claim to reduce payments on account and the reduced payments are lower than the actual tax due HMRC will charge you interest on the difference between the reduced payments made and the tax due or the original payments on account whichever is lower.

If you pay the payments on account in full and it then turns out the actual tax is lower than the payments made HMRC will refund any overpayment once your Tax Return is submitted to them.

If you would like Tax Advantage to help with your taxes please use the contact form and we will provide you with a no obligation quote.

To find out what we can do for you

Contact us

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