Take part in our new Family Business Survey and have your say! Click here
The personal allowance represents the amount of income that an individual can earn before they start to pay tax. Any income in excess of the personal allowance will then be taxed at the basic rate and then potentially at the higher rate or additional rate depending on the individual’s level of income.
The personal allowance is currently £10,600 rising to £11,000 on 6 April 2016. Today, the Chancellor announced his intention to raise the personal allowance to £11,500 from next April (2017). This means that anyone who is working 30 hours per week on national minimum wage will not be liable to pay income tax on these earnings (note that if they have other income they may be liable to pay tax on those).
Remember that the personal allowance is reduced by £1 for every £2 of income that is in excess of £100,000. This means that anyone with income over £122,000 in 2016/17 (£123,000 in 2017/18) will see their personal allowance reduced to nil.
In addition, the basic rate threshold is set to increase to £45,000 from April 2017. This means that people with earnings below the £45,000 threshold will be taxed at 20%. Earnings in excess of this but less than £150,000 will be taxed at 40% and earnings in excess of £150,000 will be taxed at 45%.
In previous statements the Chancellor announced his intention to reform NICs for the self-employed and today he announced how and when he plans to do this.
Currently self-employed individuals pay 2 types of NIC being Class 4 which is calculated as a percentage of profits and then a flat rate for 2015/16 of £2.80 per week in Class 2 NICs.
With effect from April 2018 the Class 2 NICs will be abolished saving a self-employed individual £145.60 per year (based on the 2015/16 rates). Whilst the savings are not exactly huge what these individuals may find more beneficial is the removal of the administrative burden in terms of notification/payment to HMRC of these contributions.
Class 2 NICs count towards your entitlement to the state pension and other contributory benefits such as maternity pay and bereavement pay. Don’t worry though –the government has announced that they will reform the Class 4 NIC rules at the same time so as to allow you to continue to build up your entitlements to these benefits.
All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.
Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.
Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW
Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW