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Self-employed income tax

Learn how self-employed income tax works, how to file your tax return and what supplementary forms you might need to fill out.

In this article
What is self-employed income tax? Video: how do I pay tax as a self-employed person? What are the self-employed income tax rates for 2019-20? National Insurance for the self-employed How do you file a tax return as a self-employed person?
Which self-employment supplement should I choose? What if I'm a sole trader with a limited company or partnership? Choosing the right self-employed tax supplement Submit your 2018-19 tax return with Which?

What is self-employed income tax?

Self-employed people pay income tax on your profits rather than your 'gross' income - the total amount you've earned. 

To work out the correct figure, you need to deduct all of your business expenses from your business income. 

If you're not sure which expenses you can include, see our guide on tax allowable expenses.

You can also claim for capital allowances and deduct any losses carried over from previous years. 

The resulting amount of profit is the income you can be taxed on.

Find out more: Self-employed capital allowances - find out what you can claim as tax-deductible.

Video: how do I pay tax as a self-employed person?

In our short video below, we explain who needs to pay income tax, and how to pay the right amount on your self-employed earnings.

What are the self-employed income tax rates for 2019-20?

When it comes to paying income tax, there aren't any differences in the tax rates you pay compared to employees.

You can use our 2019-20 income tax calculator to find out how much you'll pay. 

In the 2019-20 tax year, self-employed and employees pay:

  • 0% on the first £12,500 you earn.
  • 20% on income between £12,501 and £50,000.
  • 40% on income between £50,001 and £150,000.
  • 45% on income over £150,000.

For comparison, in the 2018-19 tax year, the self-employed and employees paid:

  • 0% on the first £11,850 you earn
  • 20% on income between £11,851 and £46,350
  • 40% on income between £46,351 and £150,000
  • 45% on income over £150,000.

 

National Insurance for the self-employed

The story is different when it comes to National Insurance contributions. Self-employed people pay a lower rate of National Insurance compared to employees.

The self-employed have to make Class 2, and potentially Class 4 contributions, depending on how much they earn.

For the 2019-20 year, Class 2 contributions are payable on earnings between £6,365 and £8,632 and you'll pay a flat rate of £3 per week.

Class 4 contributions in 2019-20 are as below:

  • You pay 9% on profits between £8,632 and £50,000
  • You pay 2% on profits over £50,000

In the 2018-19 year, Class 2 contributions are payable on earnings between £6,205 and £8,424 and the rate was £2.95 per week.

Class 4 contributions in 2018-19 were:

  • You paid 9% on profits between £8,424 and £46,350
  • You paid 2% on profits over £45,000

Read our guide to find out all about self-employed National Insurance.

How do you file a tax return as a self-employed person?

Once you decide to be self-employed, you should register this with HMRC as soon as possible. 

This will put you on the system, assign you with a Unique Taxpayer Reference number, or UTR. You'll be ready to go when it's time to file your tax return.

To work out whether you must pay income tax, you need to fill in the self-employment supplement (SA103) as well as the main self-assessment tax return (SA100).

If you've already registered as self-employed, this form should be sent to you automatically.

If you have registered but don’t receive one, you can download it from the HMRC website or get a copy by calling HMRC on 0845 900 0404.

  • Submit your return: To tot up your bill and send your tax return direct to HMRC, use the Which? tax calculator.

Which self-employment supplement should I choose?

There are now two self-employment supplements  – a short one and a full one.

You can fill in the short one if your turnover for the 2018-19 tax year was £83,000 or less, and you have no complications - such as a change of accounting date.

However, you can't use the short form if your accounting period - the dates you choose to prepare your accounts to each year - is not the same as your basis period (ie your business year, which is the period HMRC assesses your tax on). 

This means many people will not be able to use the short supplement in their first year of trading. 

It's up to you to make sure you use the right supplement, so if you opt for the short form make sure there are no complications that could invalidate it.

Useful link: Check HMRC's notes to help you fill in the supplement forms - the short form and the full form.

What if I'm a sole trader with a limited company or partnership?

The supplement and the advice in this section apply to people who are sole traders - as well as the forms already discussed, you may need additional supplements. 

If you are in partnership, you need the partnership supplement (SA104), which also has a full and a short version.

If you run your own limited company, you are an employee of the business and need the employment supplement (SA102).

Choosing the right self-employed tax supplement

Still feeling confused? The flow chart below can give you an idea if you need any supplementary tax return forms. If in doubt, call HMRC for advice.

 

Submit your 2018-19 tax return with Which?

You can get a head start on your 2018-19 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.

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