Self-employed Tax Calculator

What is taxes are applicable for the self-employed?

There are two taxes that are applicable for the self-employed: Income Tax and National Insurance contributions.

Income Tax is a tax that is payable on earnings that are generated in the UK. It is payable if you generate net profit over the annual tax-free threshold. This is £12,570 for the 2023/24 tax year. 

National Insurance Contributions (NIC) are made to qualify for certain benefits and the State Pension. Currently, you pay two different classes of NIC if you are self-employed and earning sufficient profits: Class 2 and Class 4. 

Click here: HMRC Self-Employed Tax Calculator

How is Income Tax calculated for the self-employed?

The requirement to submit a Self Assessment tax return depends on how much you earn from self-employment.

You are not required to submit a Self Assessment tax return if your gross trading income from self-employment is under £1,000, and you don’t have another reason to file a tax return (e.g. dividend income or capital gains income).

If this is the case then you wouldn’t even need to register for self assessment.

On the other hand, if your gross trading income is over £1,000, you will need to report this income to HMRC by completing a self assessment.

What about expenses?

You are taxed on your net profit i.e. gross trading income less allowable expenses.

Anything that you’ve spent on your business, for example buying stationary, you can deduct from your overall earnings.

However, all businesses are entitled to an annual Trading Allowance of £1,000. This means that you can effectively generate untaxed net profit of up to £1,00 each year.

If your gross trading income (before deducting any expenses) is more than £1,000 you can choose to deduct the Trading Allowance from the gross trading income instead of deducting your actual business expenses.

If you do this, the taxable profit from the activity will simply be the total income less the Trading Allowance

It would be beneficial to claim the trading allowance in this way, called partial relief, if you do not have very high expenses related to the activity. It also means that you do not need to prepare any business accounts for tax purposes.

For example, if you run a CV writing business and you make £1,500 during the tax year and have expenses of £200 then you can claim the trading allowance of £1,000 instead of your business expenses of £150 (you cannot claim both). In this instance your taxable income will only be £500 instead of £1,300.

How is Income Tax calculated for the self-employed?

Income

Tax rate

Up to £12,570

0%

Personal allowance

£12,571 to £50,270

20%

Basic rate

£50,271 to £125,140

40%

Higher rate

over £125,141

45%

Additional rate

 

The income thresholds were recently changed by the government, but the tax rates remain the same. It’s important to remember when calculating your taxes that the rates only apply to a portion of your income and not the whole amount.

Example - Income Tax and National Insurance Contributions

In a scenario where you make £75,000 and have self-employed expenses of £27,000.

This generates net profit of £48,000 and is taxed as follows;

Income Tax breakdown:

  • You pay no income tax on first £12,570 (this is your Personal Allowance)
  • You pay £7,086 at basic income tax rate (20%) on your self-employment income between £12,570 and £48,000

National Insurance contributions breakdown:

  • You will need to pay £179 of Class 2 National Insurance contributions
  • You will need to pay £3,188 of Class 4 National Insurance contributions

The total tax to pay is £10,432, which is the sum of your income tax payable of £7,086 and your combined national insurance contributions of £3,368.

Back to Tax Calculators

Share this