Tax & National Insurance When You're Self Employed

When you are self employed you need to pay Income Tax as well as Class 2 and Class 4 National Insurance.

The amount of tax and national insurance you pay is based on the amount of self employment profits you make (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.

How Much Tax Do You Pay On Your Self Employment Income

The amount of tax you pay is based not just on the amount of profit you make being self employed, but the amount you earn from all your sources of income. For example you may be a self employed hairdresser but also rent out a property – in which case the amount of tax you pay would be based on the total you earn from hairdressing and renting out your property.

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

How Much National Insurance Do You Pay On Your Self Employment Income

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 earnings (or profit).

The 2018/2019 National Insurance Rates are:
Class
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

 

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

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Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.