If you're self-employed and you need to pay tax, you have to fill out a self-assessment tax return by working out how much National Insurance, Corporate Tax and Income Tax you need to pay. This blog will explain how you can easily work it all out.
- How do I Work Out My Income Tax
- How do I Work Out My National Insurance
- How do I Work Out My Corporate Tax
Firstly, if you’re self-employed then you’re entitled to the same tax-free personal allowance as someone that’s employed. For 2018/19, the standard personal allowance is £11,580 but that will increase in the 2019/20 tax year when the standard personal allowance will be £12,500.
When you’re self-employed, you only pay income tax on any profits you make - not on your total income.
The easiest way to work out your profits is to minus your business expenses from your total income. It’s as easy as that. This is the amount you’ll pay income tax on and the amount of income tax you pay on your profits is the same as if you were employed.
For a painless way to work out your income tax, check out the table below:
|2019/20 Tax Year
|2018/19 Tax Year
Personal Allowance: 0%
|£0 - £12,500
|£0 - £11,850 (Zero income tax on profits)
|Basic Rate: 20%
|£12,501 - £50,000
|£11,851- £46,350 (20% tax on profits)
|Higher Rate: 40%
|£50,001 - £150,000
|£46,351 - £150,000 (40% tax on profits)
|Additional Rate: 45%
£150,000+ (45% tax on profits)
Again, keep in mind that the rates only apply to the profits between each bracket, not your entire profit.
For example, let’s say you’ve had a great year and your profit is £50,000 in the 2018/19 bracket. The guidelines mean you’ll pay no tax on £11,850 out of the £50,000 profit you made.
You’ll then pay 20 percent tax on £34,499 - which is the difference between the £11,851 and £46,350 - and then 40 percent tax on the remaining £3,649 from the total £50,000 profit, as that’s the amount over £46,350.
It really is as simple as that.
National Insurance Contributions (NICs) are another necessary evil that those in self-employment have to pay. Most self-employed people pay Class 2 (NICs) but this is only the case if your profits are at least £6,205 during the 2018/19 tax year.
If you fall over this limit, then you’ll need to pay £2.95 a week - or £153.40 a year. If your profits are over £8,424 in the 2018/19 tax year or £8,164 in 2017-18, then you’ll also have to pay Class 4 NICs.
If you do manage to go over this threshold, then you’ll need to pay nine percent on profits between £8,424 and £46,350 in the 2018/19 tax year and then an extra two percent on anything above this.
Corporate Tax, Corporation Tax, Company Tax - whatever you want to call it, it’s something you’ll need to pay if you’re running a private company (Ltd) or limited liability partnership (LLP) on top of your business profits.
Should that be the case, then you might also have to submit a Self Assessment tax return for any money you earn through your company. Obviously, the more your company grows, the more Corporation Tax you might have to pay depending on your business profits.
If you find that you do have to pay Corporation Tax, then there are some specific things you’ll need to do to work out, pay and report your tax so that you avoid any fines if this is something you need to pay.
Register for Corporation Tax when you start your business.
Keep all accounting records and prepare a company tax return to work out how much Corporation Tax you’ll need to pay.
Pay Corporation Tax or report it if you’ve got nothing to pay by the deadline.
File your Company Tax Return by the deadline.
Now that you know how to easily work out how to pay your own tax to keep HMRC off your back, there’s a much easier way to work out and tidy up your records so that you’re ready for the Making Tax Digital deadline.
For that, you’re going to need software as it’s part of the government’s new initiative. But don’t worry, it actually makes things a lot easier. You can avoid the hassle of endless paperwork and with the right software, you can easily do a year’s worth of bookkeeping in minutes.
Find Out More About Making Tax Digital
Now that you’re completely in the know about how you can easily work out how to pay the relevant tax and National Insurance, you’ll benefit from getting ahead and learning all about the government’s new initiative - Making Tax Digital.
To help you, we've created a Making Tax Digital summary sheet for you to use whenever you feel necessary. Download your summary guide below.