These rates and allowances change every year. These are the ones most relevant for you if you’re running a business (there are other ones, such as extra allowances for older people).
Income tax
These are the figures for 2009-10.
Allowances and tax bands
- Personal allowance: £6,475.
- Basic rate band: £37,400.
- Higher rate band: Over £37,400.
Rates
- Basic rate: 20%
- Higher rate: 40%
The rates for dividends are the 10 per cent ordinary rate and the 32.5 per cent dividend upper rate.
National Insurance
These are the main figures for 2009-10 - you can see the full list here.
Thresholds and limits - employees
- Class 1 earnings threshold: £110 / week.
- Class 1 upper earnings limit (UEL): £844 / week.
Limits - self-employed
- Class 4 lower profits limit: £5,715.
- Class 4 upper profits limit: £43,875.
Rates
- Employees’ primary class 1 rate: 11%
- Employees’ primary class 1 rate above UEL: 11%
- Employer’s seconday class 1 rate above earnings threshold: 12.8%
- Class 2 rate: £2.40.
- Class 4 rate: 8%
- Class 4 rate above upper profits limit: 1%
This may be a stupid question but having just filed my sole trader tax return, am I now personally supposed to stump up the tax bill or is it a legitimate expense from my business account? Thanks.
Personally. It’s not a legitimate expense, sadly (nor is the cost of any accountant you use to prepare your personal tax return).
Malcolm, many thanks for an excellent resource!
My wife and I are both employed; her salary being considerably lower than mine. I’m planning to do some work as a sole trader. My basic salary brings me very close to the higher rate band for tax, which (I think) means that virtually anything I earn will be taxed at 40%. Instead of this, can my wife, in effect, be the sole trader sending invoices in her name, while I do the work? Or is this simply not allowed/illegal?
Thanks!
Jim - no worries. It’s only everything over the higher rate band that’s taxed at 40% (so everything you earn up to that amount is taxed at the normal rate).
I don’t think you’d get away with what you’re suggesting as your wife isn’t actually running the business. What you could do, however, is pay your wife to do things like sending invoices / bookkeeping / anything else you can think of. Then you pay her to do this (you’ll need to pay PAYE and NI as well). This has the effect of reducing your income and raising hers and will keep some/all of your income out of the higher band.
You need to pay her a reasonable amount for the role. I’d issue a simple contract as well. But note that, while this might save you tax, it is now more complex for you to run the business as you have an employee and need to sort out her tax etc (Although you can of course pay her to do that!).
If you’re only just into the higher-rate band I probably wouldn’t bother as the time spent on extra admin will outweigh the savings!