Self Employed Tax Rates & Allowances
Tax 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.
The actual rates of tax, allowances and rates of National Insurance are as follows:
Tax Rates & Allowances
|
Allowances |
2010-11 |
2011-12 |
2012-13 |
|
Personal allowance (age under 65) |
£6,475 |
£7,475 |
£8,105 |
|
Personal allowance (age 65-74) |
£9,490 |
£9,490 |
£10,500 |
|
Personal allowance (age 75 and over) |
£9,640 |
£9,640 |
£10,660 |
|
Married couple's allowance* (age 75 and over) |
£6,965 |
£6,965 |
£7,295 |
|
Married couple's allowance* - minimum amount |
£2,670 |
£2,670 |
£2,800 |
|
Income limit for age-related allowances |
£22,900 |
£22,900 |
£24,000 |
|
Blind person’s allowance |
£1,890 |
£1,890 |
£1,980 |
Income Tax - Taxable Bands
| Rate | 2010-11 | 2011-12 | 2012-13 |
| Starting rate savings 10% | £0-£2,440 | £0-£2,560 | 30-2710 |
| Basic rate band 20% | £0-£37,400 | £0-£35,000 | 30-£34,370 |
| Higher rate band 40% | £37,401- £150,00 | £35,001-£150,000 | £34,374-3150,000 |
| Additional rate band | Over £150,000 | Over £150,000 | Over £150,000 |
National Insurance Contributions
|
£ per week (unless stated) |
2010-11 |
2011-12 |
2012-13 |
|
Lower earnings limit (primary Class 1) |
£97 |
£102 |
£107 |
|
Upper earnings limit (primary Class 1) Upper accruals point |
£844 |
£817 |
£817 |
|
£770 |
£770 |
£770 |
|
|
Primary threshold |
£110 |
£139 |
£146 |
|
Secondary threshold |
£110 |
£139 |
£144 |
|
Employees’ primary Class 1 rate between primary threshold and upper earnings limit |
11% |
12% |
12% |
|
Employees’ primary Class 1 rate above upper earnings limit |
1% |
2% |
2% |
|
Employees’ contracted-out rebate - salary-related schemes |
1.6% |
1.6% |
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 |
4.85% |
5.85% |
5.85% |
|
Employers’ secondary Class 1 rate above secondary threshold |
12.8% |
13.8% |
13.8% |
|
Employers’ contracted-out rebate, salary-related schemes |
3.7% |
3.7% |
3.4% |
|
Employers’ contracted-out rebate, money-purchase schemes |
1.4% |
1.4% |
N/A 6 Apr 12 |
|
Class 2 rate |
£2.40 |
£2.50 |
£2.65 |
|
Class 2 small earnings exception (per year) |
£5,075 |
£5,315 |
£5,595 |
|
Special Class 2 rate for volunteer development workers |
£4.75 |
£5.10 |
£5.35 |
|
Class 3 rate (per week) |
£12.05 |
£12.60 |
£13.25 |
|
Class 4 lower profits limit(per year) |
£5,715 |
£7,225 |
£7,605 |
|
Class 4 upper profits limit(per year) |
£43,875 |
£42,475 |
£42,475 |
|
Class 4 rate between lower profits limit and upper profits limit |
8% |
9% |
9% |
|
Class 4 rate above upper profits limit |
1% |
2% |
2% |
You pay tax on any profits over your personal allowance and you will pay Class 4 National Insurance on any profit over £7225.
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. They has expenses of £5,000 and is left with a taxable profit of £20,000.
Lets see what tax they have to pay:
Profit £20,000
Less
Personal allowances £6,475
Taxable profit £13,525
On this they pay £13,525 @ 20% = £2,705.00
Next we need to calculate how much Class 4 National Insurance they need to pay:
Profit £20,000
Less
Class 4 lower profits limit £5,715
Profit subject to N.I. £14,285
On this they pay £14,285 @ 8% = £1,142.80
By the 31st January following the end of the tax year Sam would need to pay £3,847.80 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.
In Sam’s case they owe £3,847.80 for tax year ending 5th April 2010 so they owe more than £1,000 and this means they may need to make payments on account towards the 2010/11 tax year. The next test is to see of the overall tax owed have they paid more than 80% of it already by deduction under PAYE, bank interest or dividend tax credit. In Sam’s case they have no other income and therefore have not paid any taxes to date.
The whole £3,847.80 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 £3,847.80 / 2 = £1,923.90.
Now comes the expensive bit, Sam needs to pay HM Revenue & Customs the tax and National Insurance due of £3,847.80 plus a payment on account for the 2010/11 tax year £1,923.90 giving a total payable by the 31st January 2011 of £5,771.70.
And finally as you need to make 2 payments on account, Sam needs to pay the second payment on account of £1,923.90 by the 31st July 2011.
On reading this you may think Sam is paying the tax twice and in essence you may say that’s right. However, all that is happening is they are paying off the 2009/10 tax year and then they will have a credit of £3,847.80 towards any potential tax due for 2010/11.
In the event they owe less tax for the 2010/11 tax year then HM Revenue & Customs will send a refund of the overpayment as soon as they process the 2010/11 Tax Return. Should Sam owe more than £3,847.80 then they would only pay the balance by 31st January 2012.
Should Sam realise that their income will be substantially less for 2010/11 than it was for 2009/10 then they can make a claim to HM Revenue & Customs to reduce the payments on account to a figure they believe will be more reflective of the tax that may be due.
Word of warning on reducing payments on account, if you reduce them and the actual tax turns out to be more than the reduced payments made HM Revenue & Customs will charge you interest on the difference between the reduced payments made and the tax due or the original payments on account which ever is lower.
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.
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