Self employed tax changes in April 2018 explained – Which? News

Self employed tax changes in April 2018 explained – Which? News
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If you’re running your own business, every penny counts – and tax rules can have a huge impact on how much you earn. As the new tax year kicks off, find out how taxes will impact your bottom line. The new tax year starts on 6 April 2018, meaning a range of previously-announced rule changes will kick in. We explain the most important tax changes for the 2018-19 tax year you need to know about if you’re self-employed. Many self-employed people set up companies to take payments and pay out expenses, then pay themselves a dividend from the profits they make. This allow them to minimise their income, and therefore their income tax bill. But as of 6 April, this strategy will be less beneficial, as the amount you’re allowed to earn from dividends before paying tax – known as the dividend allowance – is set to fall. Previously, you were able to earn £5,000 a year from dividend income before paying tax on it.  But from 6 April, this allowance will drop to £2,000. Use our 2018-19 dividend tax calculator to find out what you’ll pay. If you’re self-employed, you need to pay Class 4 contributions on income above a certain amount. In 2018-2019, this threshold is £6,205 a year – up from £6,025 in the 2017-2018 tax year. If you earn less than this, you won’t need to pay National Insurance at all, though you can opt to make voluntary Class 3 contributions. The rate for Class 2 contributions is also going up. In 2017-2018, you had to pay £2.85 per week for your Class 2 contributions – in the coming year, that will increase to £2.95 per week. The changes to Class 2 contributions mean lower-earners will end up paying slightly less National Insurance, while higher-earners will pay a little more. As an example, if you earn £20,000, you’ll pay £1,195.24 into National Insurance in 2018-2019 – £18 less than what you paid last year. But if you earn £70,000, you’ll pay £4,039.74 in this tax year – an increase of £76. You can useour calculatorto work out how much National Insurance you’ll pay in 2018-2019. Profit you’re able to earn tax-free from selling assets – known as the ‘capital gains tax allowance’ – will increase to £11,700 in the 2018-19 tax year. This is up from £11,300 in the tax year prior. This means if you’re planning to sell a valuable asset that qualifies for capital gains tax, you’ll get a smaller tax bill. If you’re selling a business as a sole trader or partnership, don’t forget you may be able to benefit from ‘entrepreneur’s relief’. This reduces the capital gains tax rate to 10% on the first £10m of gains you make over your lifetime. Like other earners, the self-employed will benefit from an increased personal allowance, which determines how much you can earn before you pay income tax. For 2018/2019, the personal allowance is £11,850, up from £11,500 in the previous tax year. —which.co.uk

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Oliver Benton

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