Personal tax rates for the 2019/20 tax year

Personal Allowances – If you earn under £100,000, your personal tax free allowance is capped at £12,500.
From earnings between £100,000 to £125,000 this figure decreases by £2 for every £1 above the threshold until it reaches zero.

If you are married or in a civil partnership and you and your partner were born on or after 6 April 1935, then you may be entitled to the marriage tax allowance. This allows couples to transfer a proportion of their personal allowance between them. The marriage tax allowance goes up to £1,250. This means the tax saving will go up from £238 to £250.
Alternatively, if one of you was born before 6 April 1935, you can get a different married couple’s allowance, which is also available to civil partners. See the Government’s married couple’s allowance calculator to see exactly what you’ll get.
10% of the married couple’s allowance is subtracted from your annual income tax bill. If you were married before 5 December 2005, it is automatically worked out using the husband’s salary. For couples married on or after 5 December 2005, it uses the highest earner’s salary.

There is also a personal savings allowance for every basic-rate taxpayer which means you can earn £1,000 interest a year without paying tax on it. Higher-rate payers get a £500 allowance, and additional-rate tax payers don’t get an allowance.

Income Tax – Anything earned above the personal allowance is subject to income tax.  If you live in England, Wales or Northern Ireland, for the 2019/20 tax year there are three marginal income tax bands – the 20% basic rate – For earnings between £12,500 & £50,000, the 40% higher rate – For earnings between £50,000 & £150,000 and for earnings over £150,000 the 45% additional rate (also remember your personal allowance starts to shrink once earnings hit £100,000).
Marginal bands mean you only pay the specified tax rate on that portion of salary. For example, if your salary puts you in the 40% tax bracket (between PA + £34,500 and £150,000 in 2018/19, unless you live in Scotland), then you only pay 40% tax on the segment of earnings in that income tax band. For the lower part of your earnings, you’ll still pay the appropriate 20% or 0%.

National Insurance – For the tax year 2019/20, workers earning an annual salary under £8632 are not required to pay NI contributions.
From £8632 to £50,000 the rate is 12% and this drops to 2% on earnings over £50,000.

For the self employed, there are two types of national insurance contributions payable – Class 2 & class 4’s which are deducted from the profit made by the business.
Class 2 – For the tax year 2019/20, if profits are under £6,365 then no NI class 2 contributions are required to be paid. Above this figure the rate is £3 per week.

Class 4 – For the tax year 2019/20, if profits are under £8,632 then no NI class 4 contributions are required to be paid. From £8,632 to £50,000 the rate is 9% dropping to 2% on anything above £50,000.

Capital Gains Tax – if you sell or give away an asset worth more than £6,000, you could have to pay CGT. Each year, individuals have an ‘annual exempt amount’ that allows them to receive some gains tax-free. Above this, you pay CGT on all gains. Your rate of CGT will depend on your other taxable income. See Gov.uk for more on how to work this out, and for more on the increased annual exempt amount, see this Gov.uk webpage.
For the tax year 2019/20 the annual exempt amount is £12,000. The standard capital gains tax rate is 18% on residential property, 10% on other assets and for the higher rate it is 28% on residential property, 20% on other assets.

It doesn’t apply for main homes, cars or lottery/pools winnings, among other things and If you give or sell assets to your spouse or civil partner, you won’t have to pay CGT, unless you separated and didn’t live together during that tax year or the assets you gave them were sold on via their business.

Dividends Tax – The allowance for tax-free dividends is unchanged at £2,000 for the 2019/20 tax year and any dividends received above this amount are taxed at 7.5% for basic rate tax payers, 32.5% for higher rate tax payers and 38.1% for additional rate tax payers. 

Pensions –  you can put as much as you earn each tax year into your pension and receive tax relief, up to an annual contribution limit of £40,000 whilst the pension lifetime allowance (LTA) – a limit on the total value you can build up in all your pensions without suffering a tax charge – is going up to £1,055,000 for 2019/20.

It’s Tax Return time!

When you’re self-employed, you’re responsible for paying tax and National Insurance on your income and filing your annual Self Assessment tax return – but it doesn’t have to be stressful. Before you get started, here are a few things you might need to know:

Registration- As soon as you become self-employed you should tell HMRC. The very latest you can register with is by 5 October after the end of the tax year during which you became self-employed.

For example, if you started your business in June 2018, you would need to register with HMRC by 5 October 2019. The tax year runs from 6 April one year to 5 April the next and if you register too late, you might be liable to pay penalties.

Record Keeping– It’s important to stay on top of your records in order to work out how much you need to pay. Keep your bank and credit card statements but if you pay for things related to your business with cash and don’t keep the receipt, you’ll be missing out.

Personal Allowance- If you’re self-employed you’re entitled to the same tax-free personal allowance as someone who is employed. For the 2018/19 tax year, the standard personal allowance is £11,850. For the 2019/20 tax year, the standard personal allowance will be £12,500.

However, if you have two jobs and one is self-employed, things are a little more complicated. You only get one personal allowance, which is usually applied to what HMRC see as your main employment. It is important you make sure your personal allowance is applied to the job paying you the most.

When completing your return, you’ll be asked for your Employer’s PAYE reference number so that any tax or National Insurance that you’ve already paid through PAYE will be included in the return. You can check this against your payslips and annual P60 plus any P45’s from jobs you’ve left in that tax year.

Calculating Your Tax – when you’re self-employed, you pay income tax on your profits, not your total income.

To work out your profits simply deduct your business expenses from your total income. This is the amount you will pay income tax on. The amount of income tax you pay on your profits is the same as if you were employed.

Allowable Expenses

Working from home?- You can claim a proportion of your home running costs as business expenses (e.g. one room out of eight is your home office or studio) or you can use these simplified expenses if you work for 25 hours or more a month from home:

Hours of business use per monthFlat rate per month
25 to 50£10
51 to 100£18
101 and more£26

Travel- if you also use your own transport, the first 10,000 business miles can be claimed at a rate of 45p per mile; 25p per mile thereafter and travel is currently 45p per mile for cars and vans. If you use a bicycle to get around, then you can claim 20p per mile. You should keep a log of both personal and business mileage. 

The different expenses you can include if you’re self-employed are:

  • cost of stock bought for resale
  • cost of equipment used at work
  • wages, salaries and other staff costs
  • payments to subcontractors (if you work in the construction industry)
  • vehicle and travel expenses
  • work building costs (including rent, power and insurance)
  • repairs and maintenance for work buildings and vehicles
  • office costs (including internet access, phones and stationery)
  • advertising and business entertainment costs
  • interest on loans
  • bank, credit card and other financial charges
  • accountancy, legal and other professional costs

You do not need to send in proof of your expenses, like receipts, when you submit your Self Assessment tax return but you will need to keep records of expenses after you submit your return for that tax year in case HMRC ask you to produce them.

Still need help?

More and more self-employed people are using the financial services provided by bookkeepers to ensure that their returns are completed accurately and on time.  

The Smarties Bookkeeping team is here to help you, please get in touch at info@smartiesbookkeeping.co.uk