Personal Taxation Allowance
The personal allowance is the amount that any UK worker (who is aged 65 and under) is allowed to earn in one year (one tax year) before they start to incur income tax. The personal tax allowance in 2014/2015 was £10,000 and this has been raised for 2015/2016 to £10,400. read more
Income Tax Thresholds
Once income tax kicks in there are various thresholds at which taxable earnings change from basic rate to higher rate to the additional rate. The basic rate of income tax is set at 20% and kicks in between £0 and £31,865. The higher rate of income tax is set at 40% and kicks in between £31,866 and £150,000. Finally, there is the 45% additional rate which kicks in on everything over £150,001.
National Insurance Rates
Self-employed workers will pay Class 2 and Class 4 NI Contributions. For 2014/2015 they will be as follows: No payment will be necessary on profits between £0 and £5,885 although it will still be necessary to apply for an exemption to Class 2. Profits between £5886 and £7596 will be charged at £2.75 per week for Class 2. Between £7596 and £41,865 Class 2 will be £2.75 per week and Class 4 will be charged at 9% of profits. Finally, any profits over £41, 865 will also incur £2.75 per week at Class 2 and an additional 2% of profits at Class 4.
Corporation Tax Rates
Most freelancers and contractors will end up paying Corporation Tax at the Small Profits Rate (applying to businesses with profits that come in under £300,000). The rate for Small Profits is currently set at 20%.
VAT Registration Threshold
The threshold for a business to register for VAT for 2014/2015 is set at £81,000. That threshold applies over the previous twelve months on a rolling basis and not per tax year.
There are a number of other changes that will affect contractors and freelancers on a case by case basis so it is always worth talking to an accountant (and a specialist contractor accountant in particular) to ensure that you make the most of your earnings and get the maximum tax relief possible.