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QUEATIONS & ANSWERS

TAX RATES 2024-25

Income Tax Rates and Bands:

Personal allowance: £12,570: 0% tax

Basic rate: £12,570 - £50,270: (up to £37,700): 20% tax

Higher rate: £50,271 to £125,140: (From £37,701 - to £125,140): 40% tax

Additional rate: over £125,140: 45% tax

Rates for 2023-24:

Personal allowance: £12,570: 0% tax​

Basic rate: £12,570 - £50,270: 20% tax​

Higher rate: £50,271 to £125,140: 40% tax​

Additional rate: over £125,140: 45% tax​

Personal allowance income limit: £125,140

National Insurance Contributions: Rates & Allowances

Class 1 national insurance (Employee): 

Weekly earnings less than £242: 0% NI payable

Weekly earning above £242 - £967: 8% NI payable

Weekly earning above £967: £2%

Class 1 national insurance (Employer): 

Weekly earnings less than £175: 0% Employer NI payable

Weekly earning above £175: 13.80% Employer NI payable

Employment allowance: £5000

Rates for 2023-24:

Class 1 national insurance (Employee): ​

Weekly earnings less than £242: 0% NI payable​

Weekly earning above £242 - £967: 12% NI payable​

Weekly earning above £967: £2%​

Class 1 national insurance (Employer): ​

Weekly earnings less than £175: 0% Employer NI payable​

Weekly earning above £175: 13.08% Employer NI payable

Self Employed National Insurance Rates

Class 2 national insurance: £3.45 a week (yearly £179.40): Payable if profits are above £6725 in a tax year. 

Class 4 national insurance: 6% on profits between £12,570 and £50,270
2% on profits over £50,270.

Rates for 2023-24:

Class 2 national insurance: £3.45 a week (yearly £179.40): Payable if profits are above £6725 in a tax year. ​

Class 4 national insurance: 9% on profits between £12,570 and £50,270

Dividends Tax 

Allowance for 2024-25: £500

Allowance for 2023-24: £1000

Basic rate: 8.75%

Higher rate: 33.75%

Additional rate: 39.35%

VAT

Standard VAT rate is 20%

Reduced rate: 5%: Some goods and services, eg children’s car seats and home energy)

Zero rate: 0%: Zero-rated goods and services, eg most food and children’s clothes

VAT registration threshold: £90,000

Corporation Tax:

Small profits rate: (companies with profits under £50,000): 19%

Main rate: (companies with profits over £250,000): 25%

Companies with profits between £50,000 and £250,000 will pay tax at the main rate, reduced by a marginal relief. This provides a gradual increase in the effective Corporation Tax rate.

Capital Gains Tax

Basic rate taxpayer: 10% on gains (18% on residential property)

Higher or Additional rate taxpayer: 20% on gains (24% on residential property)

Capital gains tax free allowance: £3,000​

Trustee or business: 24% on residential property and 20% on other chargeable assets. 

You will pay 10% if you are sole trader or partnership and your gains qualify for business asset disposal relief. 

Rates for 2023-24:

Basic rate taxpayer: 10% on gains (18% on residential property)​

Higher or Additional rate taxpayer: 20% on gains (28% on residential property)​

Capital gains tax free allowance: £6000​

Capital gains tax free allowance for 2022-23: £12300​

Trustee or business: 28% on residential property and 20% on other chargeable assets. ​

You will pay 10% if you are sole trader or partnership and your gains qualify for business asset disposal relief. 

VAT

VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses. Businesses have to register for VAT if their VAT taxable turnover is more than £90,000. They can also choose to register if their turnover is less than £90,000. 

The VAT you pay is usually the difference between any VAT you’ve paid to other businesses, and the VAT you’ve charged your customers. 

Registration thresholds 

You need to register for VAT if you go over the registration threshold (or expect to). 

  • When a business's total taxable turnover exceeds £90,000 or when goods are brought into Northern Ireland from the EU, VAT registration is mandatory.  

  • If a business sells goods from Northern Ireland to EU consumers through 'distance selling' and their EU-wide sales exceed £8,818, VAT registration is required in relevant EU countries. 

  • The businesses already registered for VAT with a taxable turnover falling below £88,000 have the option to cancel their VAT registration simplifying administrative processes. 

VAT Schemes 

VAT schemes are designed to simplify the way some VAT-registered businesses calculate and account for VAT to HMRC. 

VAT Annual Accounting Scheme 

With the Annual Accounting Scheme, you make advance VAT payments towards your VAT bill based on your last return (or estimated if you’re new to VAT) and submit 1 VAT Return a year. You can join the scheme if your estimated VAT taxable turnover is £1.35 million or less. 

How much do you pay 

Each payment is either 10% of your estimated VAT bill (monthly payments) or 25% (quarterly payments). The amount is based on previous VAT returns (or estimated if you’re new to VAT). The final payment (known as a ‘balancing payment’) is the difference between your advance payments and the actual VAT bill confirmed on your VAT Return. 

VAT Cash Accounting Scheme 

With the Cash Accounting Scheme, you: pay VAT on your sales when your customers pay you and reclaim VAT on your purchases when you have paid your supplier. To join the scheme your VAT taxable turnover must be £1.35 million or less 

VAT Flat Rate Scheme 

With the Flat Rate Scheme, you pay a fixed rate of VAT to HMRC and keep the difference between what you charge your customers and pay to HMRC. You cannot reclaim the VAT on your purchases - except for certain capital assets over £2,000. To join the scheme your VAT turnover must be £150,000 or less (excluding VAT) 

Other schemes 

If you are a retail business or sell second-hand goods, you may be able to use: 

VAT margin schemes 

VAT margin schemes tax the difference between what you paid for an item and what you sold it for, rather than the full selling price. You pay VAT at 16.67% (one-sixth) on the difference. 

You can choose to use a margin scheme when you sell: 

  • second-hand goods 

  • works of art 

  • antiques 

  • collectors’ items 

VAT Retail Schemes 

VAT retail schemes can make calculating your VAT simpler. Instead of calculating the VAT for each sale you make, you do it once with each VAT return. 

There are 3 standard VAT retail schemes: 

  1. Point of scale scheme 

You can use this scheme if you can identify the VAT rate for goods sold at the time of sale. 

How to calculate your VAT 

  • Add up all the sales for each VAT rate for the VAT return period. 

  • For 20% rated goods, divide the sales by 6. For 5% rated goods, divide the sales by 21. 

  1. Apportionment Scheme 

You can only use this scheme if you buy goods for resale. 

How to calculate your VAT 

  • Calculate the total value of goods purchased for resale in the VAT period for each VAT rate. 

  • Divide the total of purchases for each VAT rate by the total for all purchases. 

  • Multiply the outcome by your total sales, divided by 6 for 20% rated goods, and divided by 21 for 5% rated goods. 

  1. Direct Calculation Scheme 

You might want to use this scheme if you make a small proportion of sales at one VAT rate and the majority at another rate. 

How to calculate your VAT 

  • Calculate the expected selling prices (ESPs) for your minority or majority goods. Use the one that’s easier. 

  • Total up the ESP for the VAT period. 

  • If your goods are standard rated at 20% divide the total ESP by 6. If they’re zero rated, deduct the total ESP from your total sales. This will give you your sales at 20%. Then divide by 6. 

  • If you have reduced-rate (5%) goods deduct the ESP of this from your sales before calculating your VAT at 20%. Then calculate the VAT due on reduced-rate goods by dividing the ESP of these by 21. Add this figure to your 20% VAT to get total VAT due. 

How to calculate expense for working from home

Calculate your allowable expenses using a flat rate based on the hours you work from home each month.

This means you don’t have to work out the proportion of personal and business use for your home, eg how much of your utility bills are for business.

The flat rate doesn’t include telephone or internet expenses. 

You can only use simplified expenses if you work for 25 hours or more a month from home.

Hours of business use per month: 25 to 50: £10

51 to 100: £18

101 and more: £26

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