Tax 101 for the self-employed

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Autumn Statement 2023

Here’s a quick summary of the key points affecting tax for businesses and the self-employed. For much more detail, see our full roundup.

Business rates

For the 2024/25 tax year, while the standard multiplier will rise in line with inflation, the small business multiplier will remain frozen for another year.

The existing 75% reduction in business rates for retail, hospitality, and leisure businesses on business rates of up to £110,000 will be extended for another year.

Changes to R&D system

The R&D Expenditure Credit and small or medium enterprises (SME) R&D relief schemes will be merged. Within the merged scheme, the rate at which loss-making companies are taxed will be reduced from 25% to 19%.

Further, the threshold for additional support for R&D intensive loss-making SMEs will be reduced to 30%.

See our full R&D guide for further information.

Changes to Self Assessment filing threshold

Starting from the 2024/25 tax year, individuals with income over £150,000 which is taxed via PAYE will not be required to submit an Income Tax Self Assessment return (ITSA), unless there is another reason for them to do so (for example, they received more than £10,000 from dividends or savings and investments).

You can check whether you need to submit a Self Assessment return using the government's checker tool.

Cuts to National Insurance rates

For employees:

From 6 January 2024, employees will pay 10% on their earnings over £12,570, up to the £50,270 limit – a 2% cut from the current 12% rate.

For the self-employed:

From April 2024, Class 2 NI contributions will be abolished entirely (though those paying voluntarily will still be able to do so at the same rate). And Class 4 NI rates on profits between £12,570 and £50,270 will be reduced from 9% to 8%.

EIS/SEIS and VCT extensions

The EIS, SEIS, and VCT schemes have been extended until 2035.

Full expensing

Full expensing has been made available permanently.

Making Tax Digital

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will require Self-Assessment users to keep digital records and share quarterly updates with HMRC via software.

When you need to make the changes will depend on your income:

  • Self-employed individuals and landlords with an income of more than £50,000: from April 2026.
  • Self-employed individuals and landlords with an income between £30,000 and £50,000: from April 2027.
  • Measures for those with an income under £30,000 are still under review.

We'll be keeping an eye on developments, so make sure to check the platform for updates.

If you can’t pay your tax bill

If you can’t pay your tax bill in full, you may be able to set up a ‘Time to Pay’ arrangement with HMRC. Time to Pay is a payment plan which allows you to pay what you owe in instalments.

Time to Pay plans are available for tax owed from Self Assessment, employers’ PAYE contributions, and VAT. You must meet certain eligibility requirements, including HMRC believing that you can keep up with the repayments.

If you're in an industry with unpredictable cash flow (e.g hospitality), make sure you consider your predicted future revenue carefully when agreeing Time to Pay arrangements. You don't want meeting repayments to become a financial strain.

You can set up a Time to Pay plan online here.

New tax year basis for Income Tax Self Assessment

HMRC is changing the way it assesses your profits if you’re a self-employed trader (including sole traders, partners in trading partnerships, and other unincorporated bodies, e.g. trading trusts and estates) that uses an accounting date between 6 April and 30 March. You will not be affected by this change if your accounting date is between 31 March and 5 April.

Your accounting date is the last day of the period for which you prepare your accounts. You choose your accounting date. You’ll usually make your annual accounts up to that date.

The new measure changes how tax is calculated. Previously, taxation was done on a ‘current year basis’. Your profit or loss for the tax year was normally taken as that of the year up to your accounting date.

From 6 April 2024, your profits will be assessed on a ‘tax year basis’. So, your profit or loss for the tax year will be that which arises in the tax year itself (running 6 April to 5 April), whatever your accounting date is.

So, if your accounting date is between 6 April and 30 March, you’ll need to fill in your tax return differently. There is transition year from 6 April 2023 to 5 April 2024. You’ll be taxed on profits for both:

  • the 12 months up to your current accounting date; and
  • the rest of the 23/24 tax year (spread over the next five tax years, if assessable profits are higher than they would have been under the old rules. You can choose to spread them over fewer than five years, if you prefer).

You may be entitled to overlap relief. You can check the details of your overlap relief entitlement here. Make sure to find out the details of your overlap relief before submitting your 23/24 tax return. Businesses with overlap relief that they should have previously used but did not can set this against their profits in the 23/24 tax year.

You should consider:

  • How the new tax rules will affect your cashflow. You might need additional funding to make up any difference, especially in relation to tax payable in January 2025 (when larger 'catch up' payments may be due).
  • Whether changing your accounting date to line up with the tax year may be worthwhile. Keep in mind that the timing of the change will be important. You should take into your account your profit forecasts when deciding.

For more information on the change, see here.

Spring Budget 2023 – support for UK creative industries

The government announced its intention to continue supporting the UK’s creative industries by:

  • Changing audio-visual tax reliefs (for the film, TV, and video game industries) into expenditure credits.
  • Extending temporary higher rates of tax relief for theatres, orchestras, and museums/galleries for two further years, until April 2025.

The new expenditure credits will be offered at a higher rate than current tax relief:

  • 34% for film/high end TV
  • 39% for animation/children’s TV; and
  • 34% for eligible video game projects.

The government plans to bring in these changes via legislation at a later date. It should be possible to claim expenditure credits from 1 January 2024, but there will be a transition period so that companies can adjust to the change.

Read more about eligibility requirements, the transition period, and how to claim credits here.

The Autumn Statement - 17 November 2022

The Chancellors Autumn statement sets out this government’s plans to tackling some key issues, including inflation, the price of energy and the precarious state of the UK’s finances. This is the third and final budget event this year, following the Spring statement earlier this year and the much maligned and now largely reversed mini-budget from 23rd September.

Tax thresholds frozen

The personal allowance (i.e. the amount an individual needs to earn before they’re subject to income tax) has been frozen at £12,570 until April 2028. Likewise, both the basic and higher rate threshold and the main national insurance thresholds will also be frozen until that date. However, the threshold for when the highest earners start paying the top rate of income tax will be brought down from £150,000 to £125,140

Increase in the amount of tax by the most well paid

As above, the additional rate (i.e. the threshold for when high earners begin paying the top rate of tax) will be lowered from £150,000 to £125,140 from 6 April 2023.

National insurance and inheritance tax

Both national insurance and inheritance tax thresholds will both be frozen for another two years, until April 2028.

Dividend allowance and capital gains tax

The Dividend Allowance will be cut from £2,000 to £1,000 next year and then to £500 from April 2024, while the Annual Exempt Amount for capital gains tax will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024.

Reforms to Research and Development (R&D) tax reliefs

Following reports of widespread abuse of the R&D tax relief scheme, the government have announced that they will cut to the deduction and credit rates for the SME scheme. The deduction rate will be lowered from 130% to 86% while the SME credit rate from 14.5% to 10% but increase the rate of the separate R&D expenditure credit from 13% to 20%.

In this guide, we are focusing on your employment status for tax purposes. IR35 is legislation that was introduced to recoup tax revenue that is lost when freelancers and the self-employed fail to register as employees of another business. HMRC can take a dim view of parties who fall foul of this legislation and they have the right to investigate and penalise freelancers and the self-employed as well as the companies they work for.

How do I know if I'm self-employed?

Often, the lines between being self-employed and an employee can be blurred. As such there’s no hard and fast definition of what makes someone self-employed. It’s more of a balancing act, tip the scales too far and HMRC may take the view that you’re an employee.

There are some general rules of thumb to help you determine whether you will qualify as self-employed:

  • Your right to appoint a substitute: If you have agreed to work for a client but you have the right to send someone else to carry it out in your place.

  • Being able to work for others: Unlike traditional employee/employer relationships that insist on exclusivity, self-employed individuals can work for as many clients as they want (just make sure this doesn’t lead to a deterioration in your services).

  • Equipment: An employee would expect their employer to provide all the equipment they needed to perform their role. On the other hand, a self-employed individual would be expected to provide much of their own kit.

  • Responsibility: A self-employed individual may be expected to take responsibility for their work and if necessary, make good any mistakes or errors at no additional cost.

If you’re still unsure, the HMRC have put this tool together to help you check your employment status for tax purposes.

How do I register as self-employed?

First and foremost, you must register with HMRC. The deadline for doing so is the 05 October following the end of the tax year. In other words, the 05 October in your business’s second tax year.

Your self-employed income is subject to tax and national insurance contributions (NIC), but crucially, no deductions of this type will have been made before this income is paid to you. As such, it’s up to you to report and make the necessary payments to HMRC, this is what’s known as self-assessment.

N.B. There are penalties and late-payment interest charged for businesses that fail to register on time. So you should make this a priority. If you’re a new business registering for the first time, you can do so online, by post or over the phone

You might also need to consider whether you will need to register for VAT (Value Added Tax). See our VAT guide for more information.

If you work abroad

You may still have to pay National Insurance in the UK while working abroad. It will depend on where you’re working and for how long. Read the full government guidance to see whether you need to pay National Insurance while abroad.

And, learn more about paying tax while working abroad here.

Speak to an adviser if you need further help.

What happens after I register?

Your registration lets the HMRC know to issue you with a notice to complete a self-assessment tax return. This notification should be received shortly after the end of the tax year (April 5) either by post or electronically, depending on how you registered.

Likewise, your return may also be completed online via the HMRC, through the post with paper forms or by using a third party, like a tax accountant or a commercial software solution.

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