Are you a Self-Employed? Know about tax changes for 2018-19

Tax changes for 2018-19

Every penny counts when you’re running your business and there comes a huge impact on the tax rules which states on how much you earn. With the onset of New Year 2018, discover how taxes will affect your bottom line. As the New Year kicks off on 6th April, 2018 which means a range of preceding announced rule changes will set off. In this blog, get a deep insight on the most important tax changes for the 2018-19 tax year you need to know if you’re self-employed.

Divident tax
Divident tax allowances

There are self-employed individuals who set up their companies to obtain payments and pay out expenses, then they themselves pay a dividend from the profits they make. This permits them to reduce their income, and therefore their income tax bill.

But with effect from 6th April, this strategy has become less beneficial, as the amount you will be earning from dividends before paying tax called as the dividend allowance has seen a clear fall.

Formerly, you were capable of earning £5,000 a year from dividend income before tax payment. But from 6th April, you can clearly see this allowance fallen to £2,000.


  • Higher thresholds for Class 2 and Class 4 contributions

You are required to pay Class 2 contributions on income above a particular amount only if you’re self-employed. This threshold has gone up to £6,205 a year in 2018-19 from £6,205 a year.

If you’re earning lesser than this, you don’t require to pay National Insurance at all, although you can choose to make voluntary Class 2 contributions.

The Class 4 threshold has also gone up, from £8,164 last year to £8,424 in 2018-2019.

  • Higher rate for Class 2 contributions

The Class 2 contributions rate is also increasing. You might have paid £2.85 per week for your Class 2 contributions in 2017-18. In 2018-19, you will be paying £2.95 per week.

These changes to NI contributions mean low-rung earners will end up paying much less National Insurance. On the other hand, higher-earners will be paying a little extra.

For example : In 2018-19, you’ll pay £1,195.24 into National Insurance on your earnings of £20,000. But if you’re earning £70,000, you’ll end up paying £4,039.74 in this tax year—an increase rate of £76.

  • Increase in Capital Gains Tax Allowance


You’ll be making profits tax-free from selling assets which are called as the ‘capital gains tax allowance’ –will see an increase of £11,700 in this tax year 2018-19.

This has gone up from £11,300 in the tax year prior. This means if you are aiming to sell a valuable asset that is entitled to capital gains tax, you’ll obtain a smaller tax bill.

Don’t forget to get benefited from ‘entrepreneur’s relief’ if you’re selling a business as a sole trader or partnership This minimizes the capital gains tax rate to 10% on the first £10m of profits you have made throughout your lifetime.

  • Increase in Personal Allowances

The self-employed will derive benefits from an increased personal allowance, which means how much money you earn before you’re going to pay income tax. The personal allowance is £11,850 for 2018/19, increased from £11,500 in the previous tax year. You need to remember that as a self-employed, you are required to pay tax on your profits—means your earnings after expenses will get deducted.

  • Higher threshold rate increases

For England, Northern Ireland and Wales, you are required to pay an increased rate of income tax on profits exceeding £46,350 –this has gone up from £45,000 in the 2017-18 tax year.

  • Business rates has switched to CPI

The manner business rates increase has changed from April. Presently, business rates are increased in tandem with September’s Retail Prices Index(RPI), but for moving ahead, rates will be tied to the Consumer Prices Index(CPI).

This may appear like a technical change, but you’re supposed to get benefit from a lower rates, as CPI appears to be a lower as compared to RPI. Last year, in September, CPI was 3%, whilst RPI was 3.9%.

  • Decrease in VAT threshold on hold

There was some speculation before the Autumn 2017 budget that the government might reduce the threshold at which small businesses had to register for VAT. But eventually, the government announced on 1st April 2018 that the threshold would continue to remain at £85,000 for two years. Approximately 6,000 small businesses are anticipated to exceed the threshold for VAT in the 2018-19 tax year.

  • Increase in Pension Contribution

Employers will be making a 2% compulsory contribution into their employee’s pension fund from April 2018—a rise from 1% in the previous tax year.

Always remember that this will rise again to 3% from April 2019.

  • Increase in National Living Wage for Staff

You should know that as an employer, there will be an increase in National Living Wage from £7.50 to £7.83 from April 2018 – a rise of 4.4%. It means you are required to increase the wages for any staff aged over 25 who are paid a minimum wage.

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