The 2022/23 tax year starts on April 6th 2022. This blog contains everything you need to know to start the new tax year right.
2022/23 tax rates
Here are the tax rates you need to know as a sole trader in England, Northern Ireland and Wales:
- Personal Allowance: £242 per week, £1048 per month, £12,570 per year
- Income Tax – Basic rate: 20% on earnings between £12,571 and £37,700 each year
- Income Tax – Higher rate: 40% on earnings from £37,701 to £150,000
- Income Tax – Additional rate: 45% on earnings above £150,000
Scotland’s tax bands are a little different:
- Personal Allowance: £242 per week, £1048 per month, £12,570 per year
- Income Tax – Starter rate: 19% on earnings above the PAYE tax threshold and up to £2,162 each year
- Income Tax – Basic rate: 20% on earnings from £2,163 to £13,118
- Income Tax – Intermediate rate: 21% on earnings from £13,119 to £31,092
- Income Tax – Higher rate: 41% on earnings from £31,093 to £150,000
- Income Tax – Top rate: 46% on earnings above £150,000
You can make payments through the government website.
National Insurance
Sole traders pay Class 2 and Class 4 National Insurance contributions (NIC).
Class 2 NIC
- Charged at £2.85 per week, even if profits are over £45,000 a year
- Payments are made through self-assessment
- You don’t have to pay this amount if your annual profit is less than £6025
Class 4 NIC
- You don’t need to pay if your annual profit is less than £8164
- Charged as a percentage of your profits
- 9% is charged on profits between £8164 and £45,000
- An additional 2% will be charged on profits above £45,000
VAT
You must register for VAT if your income is above £85,000. VAT rates will remain the same for the next two years (20%).
Important dates to remember
The UK tax year runs from April 6th to April 5th. Here are some important deadlines to remember throughout the year:
- July 31st: Second instalment for payments on account
- October 5th: Registration for self assessment as a sole trader
- October 31st: Income tax filing (paper); Class 2 NIC payment
- December 30th: Self assessments for PAYE tax collection
- January 31st: Income tax filing (online); First instalment for payments on account
- April 5th: Claiming overpaid tax
Register with HMRC for first tax return
If this is your first year of being self-employed, you need to register with HMRC. This needs to be done by October 5th in the tax year after you started your business. So, if you started trading on May 2nd 2021, you have until October 5th 2022 to register.
HMRC will send you a letter including your Unique Taxpayer Reference (UTR) code, so don’t register last minute. They will also create an account for you to use the self-assessment online service.
Start a tax return
It’s always a good idea to stay prepared and on top of your taxes even if the deadline is months away. By doing so, you’ll have time to assess your finances and resolve any problems.
To complete your tax return, you’ll need:
- Your UTR number
- Your National Insurance number
- Details of your untaxed income throughout the year, including earnings from self-employment, dividends and shares
- A record of expenses during your self-employment
- Information on any contributions eligible for tax relief, including charity donations and pension schemes
- Records showing taxed income, including P60
Payments on account
Payments on account are advanced payments made twice a year on January 31st and July 31st. They go towards your tax bill and help you spread out your tax payments.
Taxes can be quite daunting, especially if it’s your first year as a sole trader. Luckily, we have a blog that provides further information and advice on paying taxes as a freelancer.