Having been in post for less than a month, Chancellor Rishi Sunak unveiled his first Spring Budget in March, at a time of intense scrutiny and anxiety as the Covid-19 crisis intensified.
For the self-employed, his statement couldn’t come quickly enough – particularly as the prospect of a UK-wide lockdown beckoned, threatening the very existence of their businesses.
While extraordinary measures provide some stability during the Covid-19 lockdown, life will, of course, return to normal at some point.
Therefore, if you’re self-employed, it’s crucial to understand how the measures announced in the Spring Budget will affect your finances, both now and after the lockdown is eased.
Here are the highlights:
Previously, Chancellors have increased the tax-free allowance for self-employed and employed workers, but, in 2020, there are no changes on this front. For this financial year, the lower threshold of £12,500 will remain before the 20% rate kicks in; the higher threshold of £50,000 also stays unchanged.
A change sure to be welcomed by all self-employed people, the National Insurance threshold is increased. Now you can expect to start paying NI contributions once you’ve earned at least £9,500 per year, up from £8,632.
Class 2 National Insurance Contributions (NICs) – paid by the self-employed to earn access to state benefits including the basic state pension, maternity allowance and bereavement benefits – is increasing by 5p a week to £3.05.
If you’re an employer, your NIC Allowance is also increasing. As of 6th April 2020, your business could now be awarded a £4,000 reduction on its National Insurance bill (an increase of £1,000 from the previous NIC Allowance). Therefore, you’ll only pay Class 1 NICs after the first £4,000 has been processed through your payroll, before reverting to the standard rate of 13.8%.
Contrary to expectations, the Chancellor decided not to proceed with the planned reduction in Corporation Tax, so the rate remains 19%. Only limited companies need to consider the financial implications of this.
Many self-employed people work from home and can claim a flat rate for reasonable household expenses during working hours, such as energy and utilities, thus avoiding the headache of calculating a percentage of their bills when completing their annual tax return. From April 2020, the amount you can offset against tax is increasing from £4 per week to £6.
For higher-earning self-employed business owners, the following changes may also be relevant:
At David Howard, we provide a range of expert business advisory and development services, including for sole traders.
For more information, feel free to get in touch.
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