The start of the new tax year on 6 April probably wasn’t greeted with fireworks and popping corks (unless you’re a very keen HMRC employee).

But the new UK tax year is an important date if you’re self-employed, as it’s brought in several changes that could affect your finances.

Self-employment tax-rate changes

There are four key changes in the 2019-20 tax year. Depending on how much you make, you may end up with more money in your pocket.

On the plus side:

  • The personal tax-free allowance (the amount you can make before paying any tax) has increased by 5.5% - from £11,850 to £12,500.
  • The higher-rate tax threshold has also increased. You’ll now only pay the 40% tax rate on any profits over £50,000 (up from £46,350 last year).

But it’s not such good news for high earners:

  • If your net profits exceed £100,000, then your personal allowance will be reduced by £1 for every £2 you earn over this amount.
  • If you’re lucky enough to make more than £124,000, HMRC won’t let you have any personal allowance at all. So you’ll pay tax on every penny of profit you’ve made.

Find out more about income tax for the self-employed from the Which? Money experts.

Increases to National Insurance for the self-employed

Close up of pound coin

You’ll probably need to fork out more on National Insurance (NI) than last year, thanks to changes to the two classes of NI usually paid by the self-employed.

For gross profits between £6,365 and £8,632

Class 2 weekly contributions have increased from £2.95 to £3 per week.

They now have to be paid on gross annual profits (the amount you’ve made before tax) of between £6,365 and £8,632.

For gross profits over £8,632

Class 4 contributions have remained at the same rates as last year, but the thresholds for paying have changed.

The higher 9% rate now applies to gross annual profits between £8,632 and £50,000. For profits over £50,000, the rate comes down to 2%.

Last year, that drop to 2% was at a lower threshold of £46,350. So if you’re making more than that, the chunk of your profits between £46,350 and £50,000 has now moved into the higher rate - so you’ll end up paying more NI overall.

Use Which? Money’s simple National Insurance calculator to work out your NI contributions.

Do you need to register for Making Tax Digital?

Making Tax Digital is a government initiative that aims to make it easier for businesses and individuals to get their tax right.

It requires businesses to keep digital tax records and use software to submit their returns. So far, it’s only been rolled out for VAT.

So if your business is VAT-registered with a taxable turnover above the £85,000 threshold, you need to use Making Tax Digital. You’ll have to register one week before your first VAT return is due.

If you meet the criteria, HMRC should have written to you already. But reports suggest that many eligible businesses weren’t signed up before the deadline.

Check if you have to join and follow the guide to register.

Changes to auto-enrolment pension contributions

If you have any employees, it’s compulsory to automatically enroll them into a pension if they’re eligible.

From April 2019, the minimum amount you’ll need to contribute (unless they’ve opted out) has gone up from 2% to 3%.

Find out if your employees are eligible for auto-enrolment pensions and how much you should pay.

If you’re self-employed, you aren’t automatically enrolled into a pension scheme. So you’ll need to make your own arrangements.

Read expert advice on getting a personal pension if you’re self employed.

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