You must pay both income tax and national insurance when you’re self-employed. It’s also your responsibility to calculate how much tax you owe and declare it to HMRC.
Here I share with you essential advice to help you understand:
- What tax and national insurance you need to pay when you’re self-employed;
- How each of these are calculated;
- Where you can download my tax and national insurance calculator for 2019/2020.
What Tax and National Insurance Do You Pay When You’re Self-Employed
Everyone who is self-employed must pay:
- Income Tax
- Class 2 National Insurance
- Class 4 National Insurance
The amount of each you pay is based on your business profits for each complete tax year.
The tax year runs from 6 April to 5 April.
Business profit means your business income less allowable business expenses
It is your responsibility to work out
- Self-employment profits,
- The tax and national insurance you need to pay;
- Submit this to HMRC by filling in a self-assessment tax return form.
Income Tax Rates When You’re Self-Employed
The amount of income tax you pay is based on:
- Your self-employment profits
- Any other income you earn
So say you are a self-employed hairdresser and also rent out a property, the amount of income tax you pay will be based on the total earnings from the two.
How Much Can You Earn Tax Free When You’re Self Employed
Everyone in the UK is entitled to earn a certain amount each tax year tax-free. This is known as a personal allowance.
So in our example above, the self-employed hairdresser would only start paying tax if his combined earnings were more than the personal allowance.
Even if you earn less than the personal allowance when you’re self-employed, you still need to fill out a self-assessment tax return form.
The personal allowance for 2019/2020 is:
|Personal Allowance Income Limit||£100,000||£100,000|
The personal allowance for those earning between £100,000 – £122,000 disappears. You will lose £1 of Personal Allowance for every £2 of Income between this threshold and an estimate for this is reflected in above calculations, meaning there is no personal allowance available for those with earnings above £122,000
The income tax rates for 2019/2020 are:
|Basic rate 20%||£12,501 to £50,000||£11,851 to £46,350|
|Higher rate 40%||£50,001 and £150,000||£46,351 to £150,000|
|Additional rate 45%||over £150,000||over £150,000|
Class 2 and Class 4 National Insurance Rates When You’re Self Employed
The amount of Class 2 and Class 4 national insurance you pay when you’re self-employed is based on your self-employment business profits only.
The 2019/2020 Class 2 National Insurance Rates are:
|Small profits threshold – no NICs below this threshold||£6,365||£6,205|
|Class 2 National Insurance||£3.00 per week||£2.95 per week|
The 2019/2020 Class 4 National Insurance Rates are:
|Small profits threshold – no NICs below this threshold||£8,632||£8,424|
|Class 4 National Insurance 9%||£50,000||£46,350|
|Class 4 National Insurance 2%||over £50,000||over £46,350|
An Example of How to Calculate Your Tax and National Insurance When You’re Self-Employed
Molly is a self-employed blogger but also has a part-time job earning £15,000 per year. Her employer has already deducted and paid over £800 of income tax through payroll.
She has worked out that her profits from blogging are £22,000.
She is getting ready to submit her tax return for the tax year 2018/2019 which is due by 31 January 2020.
Molly calculates her income tax as £5,030.
Total income £15,000 + £22,000 = £37,000
Taxable income (after deducting personal allowance £11,850) £25,150
Tax Due £5,030 (£25,150 x 20%)
Molly calculates her Class 2 National Insurance as £153.40 (£2.95 x 52 weeks).
Molly calculates her Class 4 National Insurance as £1,421.55 (£22,000 – £6,205 x 9%)
Molly’s total tax bill is:
- Income tax £5,030
- Class 2 National Insurance £153.40
- Class 4 National Insurance £1,421.55
- Total for 2016/2017 £6,604.95
- Payment on Account £2,825.78
- Total to pay by 31 January 2018 £8,630.73
In our example, Molly would need to complete the self-employment section AND employment section of her Self Assessment Tax Return.
She would need to disclose what she earned in her job which will be on her P60 provided to her by her employer.
Free 2018/2019 Tax Calculator
Click here to download my free 2018/2019 tax calculator to help estimate your tax and national insurance if you’re self-employed
Free 2019/2020 Tax Calculator
Click here to download the 2019/2020 version of the tax calculator.
Updated 3 April 2019
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