Tax & National Insurance When You’re Self Employed

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Tax and National Insurance When You're Self Employed

You must pay both income tax and national insurance when you’re self employed.  Specifically:

  • Income Tax
  • Class 2 National Insurance
  • Class 4 National Insurance

The amount of tax and national insurance you pay is based on the amount of self employment profits you make (that means all your income less allowable expenses).

It is your responsibility to work out your self employment profits, the amount of tax & national insurance you need to pay and submit this to HMRC on a self assessment tax return form. This can be done online by signing into your HMRC online account.

Tax When You’re Self Employed

The amount of tax you pay is based on the total of these two added together:

  • 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 tax you pay will be based on the total of the two.

The 2018/2019 tax rates are:
2018/2019
2017/2018
Personal Allowance
0%
Up to £11,850
Up to £11,500
Basic rate
20%
£11,851 to £46,350
£11,501 to £45,000
Higher rate
40%
£46,351 to £150,000
£45,001 to £150,000
Additional rate
45%
over £150,000
 over £150,000

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

National Insurance When You’re Self Employed

Class 2 and Class 4 national insurance are only payable on self employment profits, not other forms of income like rental income or bank interest.

The amount of Class 2 and Class 4 national insurance you pay is based on your self employment profit.

The 2018/2019 National Insurance Rates are:
Rates for tax year 2018/2019
Rates for tax year 2017/2018
Class 2
£2.95 a week
On taxable profits above £6,205
£2.85 a week
On taxable profits above £6,025
Class 4
9% on profits between £8,425 and £45,000
2% on profits over £46,350
9% on profits between £8,164 and £45,000
2% on profits over £45,000

An Example of Working Out Tax and National Insurance When You’re Self Employed

Molly is a self employed food blogger but also has a part time job earning £15,000 per year, so has paid tax of £800 through payroll.  She is getting ready to submit her tax return for the tax year 2016/2017 which is due by 31 January 2018.  Molly has worked out that her profit from her blogging was £22,000 therefore she will need to pay tax of £4,400. In addition, she will also need to pay Class 2 National Insurance of £145.60 and Class 4 National Insurance of £1,254.60.

Molly’s total tax bill is therefore:

  • Income tax £4,400.00
  • Class 2 National Insurance £145.60
  • Class 4 National Insurance £1,254.60
  • Total for 2016/2017 £5,800.20
  • Payment on Account £2,827.30
  • Total to pay by 31 January 2018 £8,627.50

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.

Tax and National Insurance Calculator 2019

Not sure where to start with estimating your tax and national insurance?  My Tax Calculator works it all out for you. Just enter your email address below and I’ll send it to you.