Tax Rates and allowances 2021/22 for freelancers
If you are self-employed and are freelancing then you need to be aware of the latest tax rates and allowances for the new tax year 2021/22. This is especially relevant if you manage your own finances and taxes. Even if you use the help of an accountant to file your taxes, it’s good to be aware of the changes to the tax rates.
So, here are the main tax rates and allowances for 2021/22 that the self-employed/freelancer community need to be aware of.
The corporation tax rate, along with some of the other tax rates and allowances, is frozen until the tax year 2023/24 as the chancellor announced in the Spring 2021 Budget. The current corporation tax rate that you will have to pay is 19% if your profit falls below £300,000.
The corporation tax from 2023/24 will be 19% only for companies with profits under £50,000. Profits above £250,000 will have to pay the increased rate will be 25%.
Value Added Tax (VAT)
If you turn over more than £85,000 in 12 months then you need to register for VAT. You can also de-register if your turnover falls below the current threshold of £83,000.
Dividend income of up to £2,000 is tax-free, no matter what non-dividend income they have.
The dividend basic rate is 7.5%. £0 to £49,999 on taxable income over the Personal Allowance In England.
The dividend higher rate is 32.5%. £50,000 to £99,999 on taxable income over the Personal Allowance In England
Dividend additional rate is 38.1%. Over £100,000 of taxable income.
Income Tax – Personal Allowance
The personal allowance increased to £12,570. This is the amount you can earn on an annual basis without getting taxed.
Income Tax Bands
The basic rate band is 20% and applies to income up to £37,700. The higher rate band is 40% and applies to income from £37,001 to £150,000. The upper (additional) rate band is 45% and applies to income of £150,000 and above.
National Insurance Contributions (NICs)
If you run a company (or work for one), then Class 1 NICs apply. So, the employees’ Class 1 NICs are payable at 12% on salaries over £182 per week and the employers’ Class 1 NICs are payable at 13.8% on earnings above £169 per week.
For sole traders and partnerships, you pay Class 2 and Class 4 NICs. Class 2 NICs are payable at £3.05 per week and are paid by anyone earning £6,515 or more through self-employment during the tax year. Class 4 NICs are paid on profits you make as a self-employed person. The Class 4 NI rate is 9% of annual profits between £9,568 and £50,270, and an additional 2% on profits above £50,270 per year.
Pensions Savings Tax Relief
The annual allowance limit remains at £40,000. The maximum tax-free lump sum is 25% of your pension pot.
Capital Gains Tax
If you pay higher rate income tax you’ll pay 28% on your gains from residential property, and 20% of your gains from other chargeable assets. If you pay basic rate income tax you’ll pay 18% on your gains from residential property, and 20% of your gains from other chargeable assets. You’ll pay 10% if you’re a sole trader or partnership and your gains qualify for Entrepreneurs’ Relief.
Each individual has an annual CGT exemption of £12,570.
More on tax advice here.