What is Self-Employed Tax?
It is a tax that is paid by individuals who work for themselves, rather than for an employer. If you’re a self-employed individual in the UK, you’ll need to pay tax on the income you earn from your work. This tax is known as Income Tax, and it is based on the profits you make from your business or work.
In addition to Income Tax, self-employed individuals in the UK are also required to pay National Insurance contributions. These contributions go towards funding the state pension and other benefits, and are calculated based on your profits.
When does Self-Employment Tax Apply
The list for when self-employment tax applies is quite exhaustive and is definitely worth checking for your own personal circumstances. With our InvoiceNet users in mind the top two that might apply are:
- your self-employment income was more than £1,000 (before taking off anything you can claim tax relief on)
- your income from renting out property was more than £2,500 (you’ll need to contact HMRC if it was between £1,000 and £2,500)
For a comprehensive list please go to the governments own Money Helper website. Here they will outline all the criteria for whether you need to to fill in a Self Assessment tax return as well as a host of other useful information.
What are the relevant Tax Rates
The tax rates for self-employed individuals depend on their taxable income. For the tax year April 2022 to April 2023 they are as follows:
- Income upto £12,570: 0% tax on profits (a.k.a your Personal Allowance),
- Income from £12,570 to £50,270: 20% tax on profits,
- Income between £50,271 and £150,000: 40% tax on profits above £50,270,
- Income above £150,000: 45% tax on profits above £150,000.
For the latest and more useful information, please go the HMRC website.
It’s important to note that these tax rates are only for the tax on profits and not your total income. In addition to the tax on profits, individuals are also required to pay National Insurance contributions. On the flip side their are other costs (e.g. expenses) that can be deducted as well.
How to Register for Self Assessment
If you’re self-employed in the UK, you need to register for self-employed tax with HM Revenue and Customs (HMRC) as soon as possible after starting your business or work. To do this, you will need to register for self-assessment, which is the system used by HMRC to collect Income Tax and National Insurance contributions from self-employed individuals.
To register for self-assessment, you can visit the HMRC website and fill out the registration form online. Once you’ve registered, you will receive a unique taxpayer reference (UTR) number. You’ll need to use this when submitting your tax returns to HMRC.
If you’re self-employed in the UK, it’s important to keep detailed records of your income and expenses, as these will be used to calculate your tax liability. You can use accounting software like InvoiceNet or hire an accountant to help you keep track of your finances. All of which will help to ensure that you’re meeting your tax obligations.
Tips for Self-Employed Tax in the UK
Here are some tips to help you stay on top of your self-employed tax obligations in the UK:
- Keep accurate records of your income and expenses, so that you can easily complete your self-assessment tax return each year. This is where InvoiceNet comes in, why not try our application free for a month!
- Make sure you’re aware of all the expenses you can deduct from your profits, such as office expenses, travel costs, and professional fees.
- Be aware of the deadlines for submitting your self-assessment tax return and paying your tax bill. Late submission or payment can result in penalties and interest charges.
- Consider setting aside money each month to cover your tax bill, so that you’re not caught off guard when it’s due.
- Seek professional advice if you’re unsure about any aspect of self-employed tax in the UK, especially if you’re just starting out.
In conclusion, self-employed tax in the UK can be complex, but it’s important to understand your tax obligations and stay on top of your finances. By keeping accurate records and seeking professional advice when necessary, you can ensure that you’re meeting your tax obligations and running your business or work successfully.