With the 2024-2025 tax year rapidly approaching, we asked Gopy from AR Tax Accountants to share tips for contractors and freelancers to consider before the April 5th deadline.
Expert View
The tax-free personal allowance for 2024/25 is £12,570 and the basic rate band is £37,700.
Given that your gross income can be £12,570 + £37,700 = £50,270 before having to worry about higher rate tax, it may be worth considering paying yourself more last-minute salary and/or dividends to take advantage of any unused personal allowance or basic rate band.
You’ll need to be aware of the rules around paying yourself salary and dividends as going over the thresholds can mean further tax would be due.
It’s also important to know that the income tax bands are different if you live in Scotland.
If you have had a good year and have exceeded the higher rate tax threshold, there may be options to reduce your higher rate tax burden such as by making personal pension contributions or by making investments into certain schemes such as EIS, SEIS, VCT, etc.
Seek expert advice from an Independent Financial Advisor (IFA) or accountant should you be unfamiliar with the many tax rules surrounding such payments.
For tax year 2024/25, the child benefit repayment band has increased - which means the higher earning partner begins to gradually repay child benefit when their “adjusted net income” exceeds £60,000.
Are you or your partner aware all child benefit received during the 2024/25 tax year, if your “adjusted net income” has exceeded £80,000, needs to be repaid?
Or if either of you fall into the £60,000 - £80,000 band, are you or your partner going to start or continue to claim child benefit as only some of it needs to be repaid to HMRC?
In addition, another tax pitfall to avoid is the £100,000 - £125,140 income band where individuals with “adjusted net income” within this band stands to lose £1 of personal allowance for every £2 that your adjusted net income exceeds £100,000.
As with the child benefit repayment trap, the loss of personal allowance trap can be potentially avoided with careful planning and timing of tax reliefs and/or salary/dividend payments.
Make sure you download the HMRC app - which will help you to check gaps in your National Insurance contributions record.
Check if it’s not too late to make payments for gaps in your National Insurance record, check your State Pension forecast, and view your employment and income history for the previous 5 years.
Now is the time to check your records and forecasts are correct, up to date, and to query any gaps or potential issues before time runs out.
Contact AR Tax Accountants for personalized advice on issues around tax and accounting for freelancers and contractors.
Gopy is owner of AR Tax Accountants, working as an accountant for over 15 years and setup his own business in 2019 at the height of the anxiety caused by the proposed private sector off-payroll working rules.
Learn moreThe process of calculating and reporting your income and expenses to HRMC each year, rather than being taxed at source.
Whilst you'll not need to pay your tax for a little while yet - it's essential to understand what tax you'll be paying, and start to put it aside, so you don't end up with a surprise bill.
Top 20 ranked "I wish I knew", many new freelancers don't proactively know much to put aside for tax and national insurance.
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