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 |
2011-12 |
2012-13 |
2013-14 |
|
Personal allowance (age under 65) |
£7,475 |
£8,105 |
£9,440 |
|
Personal allowance (age 65-74) |
£9,490 |
£10,500 |
£10,500 |
|
Personal allowance (age 75 and over) |
£9,640 |
£10,660 |
£10,660 |
|
Married couple's allowance* (age 75 and over) |
£7.295 |
£7,705 |
£7,915 |
|
Married couple's allowance* - minimum amount |
£2,800 |
£2,960 |
£3,040 |
|
Income limit for age-related allowances |
£22,900 |
£24,000 |
£26,100 |
|
Blind person’s allowance |
£1,980 |
£2,100 |
£2,160 |
Income Tax - Taxable Bands
| Rate | 2011-12 | 2012-13 | 2013-14 |
|
Starting rate savings 10% |
£0-£2,560 | £0-£2,710 | £0-2,790 |
| Basic rate band 20% | £0-£35,000 | £0-£34,370 | £0-32,010 |
| Higher rate band 40% |
£35,0001-£150,000 |
£34,371-£150,000 | £32,011-£150,000 |
| Additional rate band 50% | Over £150,000 | Over £150,000 | N/A |
| Additional rate from 6th April 13 45% | N/A | N/A | Over £150,000 |
National Insurance Contributions
|
£ per week (unless stated) |
2011-12 |
2012-13 |
2013-14 |
|
Lower earnings limit (primary Class 1) |
£102 |
£107 |
£109 |
|
Upper earnings limit (primary Class 1) Upper accruals point |
£817 |
£817 |
£797 |
|
£770 |
£770 |
£770 |
|
|
Primary threshold |
£139 |
£146 |
£149 |
|
Secondary threshold |
£136 |
£144 |
£148 |
|
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 |
1.6% |
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 |
3.7% |
3.4% |
3.4% |
|
Employers’ contracted-out rebate, money-purchase schemes |
1.4% |
N/A |
N/A |
|
Class 2 rate |
£2.50 |
£2.65 |
£2.70 |
|
Class 2 small earnings exception (per year) |
£5,315 |
£5,595 |
£5,725 |
|
Special Class 2 rate for volunteer development workers |
£5.10 |
£5.35 |
£5.45 |
|
Class 3 rate (per week) |
£12.60 |
£13.25 |
£13.55 |
|
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 |
9% |
9% |
9% |
|
Class 4 rate above upper profits limit |
2% |
2% |
2% |
|
Class 4 lower profit limit |
£7,225 |
£7,605 |
£7,755 |
|
Class 4 upper profit limit |
£42,745 |
£42,475 |
£41,450 |
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.
