Self Employed Tax Bracket Changes for 2024/25 Year

Welcome to our comprehensive guide on the latest tax changes for self-employed individuals in the UK for the tax year 2024-25. As the new tax year starts from April 6th, it’s crucial for self-employed individuals to stay informed about the tax updates that could impact their finances and business operations.

In this guide, we'll walk you through the important updates that affect how much you earn and what you pay in taxes as a self-employed individual. From changes in personal allowance rates to updates in income tax brackets and national insurance reforms, we've got you covered. So, let's dive in and ensure you're up-to-date with all the essential information to manage your finances effectively and stay compliant with HMRC.

Personal allowance refers to the amount of income an individual can earn before they start paying income tax. It will remain the same for 2024/25 tax year as bellow:

• £242 per week
• £1,048 per month
• £12,570 per year

The above personal allowance will remain the same until the 2028 tax year.

Income Tax Rates 2024:

The income tax brackets also remain the same compared to the previous year:

Below are the income tax brackets for the tax year 2024/25:

National Insurance (NI) contributions are payments made by individuals to qualify for certain state benefits, including the State Pension, Maternity Allowance, and Sick Pay. Most people pay Class 2 and Class 4 National Insurance through Self Assessment.

If your profits reach £6,725 or more annually:

You're considered for National Insurance contributions. However, if this threshold is surpassed, Class 2 contributions are automatically accounted for, safeguarding your National Insurance record without requiring additional payment.

Once profits exceed £12,570 per year, Class 4 contributions become mandatory. For the tax year 2024-2025, the rates are as follows:

• 6% on profits from £12,570 to £50,270
• 2% on profits over £50,270

If your profits fall below £6,725 annually, no contributions are necessary. Nevertheless, you have the option to make voluntary Class 2 contributions if desired. For the tax year 2024-2025, the weekly rate for Class 2 contributions stands at £3.45.

Small businesses having employees and operating PAYE as a part of Payroll require to deduct national insurance contributions from employee wages.

National Insurance Rates for 2024

Class 1 National Insurance Thresholds

You can only deduct National Insurance from earnings that exceed the lower earnings limit.

Class 1 National Insurance Rates

The national minimum wage in the UK is the minimum hourly rate that employers must legally pay their workers. This rate varies depending on the age of the worker and whether they are an apprentice. The rates change on 1 April every year.

If you own shares in a company, you may receive a dividend payment.

You can receive some dividend income annually without paying tax.

Any dividend income within your Personal Allowance is subject to tax-free.

Additionally, you receive a dividend allowance annually. Tax only applies to dividend income exceeding this allowance.

The dividend allowance for 2023/24 was £1,000 which is now reduced to £500. It means you have to pay tax on dividend income above £500.

The tax rates on dividends remains the same in 2024/25 tax year as below:

During the Autumn Statement on 22 November, the Chancellor announced a support package totaling £4.3 billion over the next five years to support small businesses and the high street.

For the fiscal year 2024/25, the Chancellor announced the following which will come into effect from 1st April, 2024:

• The small business multiplier will remain fixed at 49.9p.
• The standard multiplier will be adjusted in April according to September’s CPI figure  (6.7%), resulting in an increase from 51.2p to 54.6p.
• The Retail, Hospitality, and Leisure (RHL) scheme for 2024/25 will be extended for a fifth year, maintaining its existing scope and granting eligible properties 75% relief, capped at £110,000 per business.

Changes in Working Tax Credits:

HMRC aims to bring an end to working tax credits. By the end of the 2023/24 fiscal year, HMRC intends to migrate all individuals solely claiming working tax credit or child tax credit to universal credit. Furthermore, HMRC plans to finalize the migration of remaining tax credit recipients by the end of the 2024/25 fiscal year.

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• Previously, capital gains tax allowance was £6,000 in 2023/24 which is now reduced to half at £3,000 for individuals and £1,500 for trustees. Full expensing is now permanent.
• As per the Spring budget 2024, the VAT registration and deregistration thresholds have been increased from 1 April 2024.
  • The 12-month taxable turnover threshold to register for VAT goes up from £85,000 to £90,000.
  • The 12-month taxable turnover threshold to apply for deregistration goes up from £83,000 to £88,000.
• Under the basis period reform, all unincorporated businesses will be taxed on the profits generated during the tax year, spanning from 6 April to 5 April, irrespective of the year-end for which the business prepares its accounts.
• From April 2025, you will have to pay a premium council tax if you have a second home, holiday home or an empty property. 
• Fuel duty will remain frozen until March 2025.
• The UK ISA aims to support savers and provide individuals with retail investment opportunities. It will introduce a £5,000 allowance on top of the current ISA allowance, offering a new tax-free investment option for UK-focused assets.
• From April 2024, pension changes involves eliminating the lifetime allowance.
• With the merger of R&D Expenditure Credit (RDEC) and the SME relief schemes, starting from 1 April 2024, all qualifying businesses can claim a 20% rate against R&D spending for all qualifying expenditure, regardless of staff levels or turnover.
• The Plastic Packaging Tax will increase from £210.82 per tonne to £217.85 per tonne.