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.
Income Tax When You’re Self Employed
The amount of income tax you pay is based on:
- Your self employment profits AND
- 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 of the two.
The 2018/2019 income tax rates are:
|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 £150,00||£45,001 to £150,000|
|Additional Rate||50%||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
The amount of Class 2 and Class 4 national insurance you pay is based on your self employment profits only.
The 2018/2019 National Insurance Rates are:
|Class 2||£2.95/week on taxable profits over £6,025||£2.85/week on taxable profit over £6,025|
|Class 4||9% on profits between |
£8,425 and £46,350
2% on profits over £46,350
|9% on profits between |
£8,164 and £45,0000
2% on profits over £45,000
How to Work 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 profits from blogging are £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.
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