Self-employed tax calculator

People can now work at their own pace and under their conditions thanks to modern technology. Given the ease with which you can earn money without dealing with limiting circumstances, there has been a noteworthy increase in the number of freelancers throughout the country.

Freelancers value the idea that they are their bosses, drawing an increasing number of people away from regular jobs and into a new work style.

Of course, there are several technicalities to consider before diving headfirst into freelancing. You'll need to think about how to calculate your Self-employed taxes in addition to setting up a good work area.

What is self-employed tax?

Anyone who makes money from commercial activities or through work in the UK for themselves or someone else should pay income tax in the UK.

In both situations, the amount you pay depends on your income and is determined by progressive tax bands.

2024–25 tax year

2023–24 tax year

* assumes people receive the Standard UK Personal Allowance.

** Those who earn more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

Should self-employed individuals have a pension?

Saving for a pension can be more challenging for self-employed individuals than employed ones. No one selects a pension scheme for you, no employer contributions, and your income probably varies. But having a pension has many benefits.

Pensions are a profitable investment for everyone, not only salaried individuals. Setting up a pension may not seem a top priority when you invest all your time in growing a business, attracting clients, and doing the work you find rewarding.

Self-employed tax fines in the UK

As a sole trader, you pay the penalty if you miss the deadline or fail to pay your tax bill.

The Penalty is £100 for late submissions up to three months late. You'll pay more if the submission is later than three months. Interest will be charged for delayed payments.

A payment plan can be arranged with HMRC if you cannot pay your tax bill. This must be completed before the bill is due or by 1 April for self-assessments.

How to calculate your self-employed tax

Calculate your take-home pay after business expenses using the self-employed income tax calculator UK:

• To use the tax calculator self-employed UK, enter your gross annual income.
• Add up and enter your allowable business expenses that can be subtracted from your income before taxes.
• The self-employed tax calculator UK will estimate your profit after tax and national insurance.

Self-assessment tax return - essential things to consider

• Before filing your tax return, gather all the data you can about your income for the tax year and any deductible business expenses.
• Keep track of all income you earn and spend during the year, whether in cash or through a bank account. This makes it much simpler to complete your tax return accurately.
• Make sure you have your UTR (unique taxpayer reference) number, which you receive when you sign up for self-assessment. Find it in any correspondence you receive from HMRC regarding your tax return.

Self-employed expenses: how do you calculate your business costs?

According to HMRC, self-employed individuals may deduct specific business expenses from their earnings before calculating taxes. These consist of:

• Travel
• Legal and accounting fees
• Company insurance
• Office expenses like printing and postage
• Marketing expenses
• Business premises expenses, or a portion of your utility bills if you work from home

How much self-employment tax will I have to pay on my income?

Self-employed individuals must determine, file, and pay their taxes, whereas employees' taxes are deducted at the source through the PAYE system by the employer.

As a self-employed individual, you must inform HMRC of your self-employed status and then submit an annual self-assessment tax return. You are liable for paying your taxes and any other required contributions.

The tax system is complex, and you may be required to make several payments depending on the type of business you operate:

Income Tax:You'll determine and then pay your national insurance and income tax through your annual self-assessment tax return.

VAT:Once you register for VAT, you must submit a VAT return via HMRC, Making Tax Digital (MTD) system, usually every quarter.

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

You have three options for filing taxes: online, on paper, or with third-party software. You can choose from a list of commercial software companies provided by HMRC.

When you decide to work as self-employed, you should register with HMRC.

Suppose you've never filed a self-assessment tax return. In that case, you'll be given a Unique Taxpayer Reference (UTR) number and registered for Class 2 National Insurance contributions. You'll have to pay voluntarily unless your income exceeds a certain threshold.

Submit your return: Using the self-employed tax calculator, add up your expenses and send your tax return directly to HMRC.

National Insurance for the self-employed

Individuals can estimate their income tax liabilities using self-employed NI and tax calculator.

• The self-employed individuals pay Class 4 contributions based on their earnings.
• Class 2 NIC was abolished from the tax year 2024-25. Previously, if your income exceeds £12,570 in 2023–2024, you must make Class 2 payments at £3.45 per week.
• On profits over £12,570 (£12,570 for 2023-24), Class 4 payments are payable at 6% (9% for 2023-24), reducing to 2% (2% for 2023-24) on earnings over £50,270.

What if I make a mistake on my tax return?

Once you submit your tax return and realise that an entry is inaccurate, you can amend that return. To make the changes, you have up to 12 months starting on 31 January after the end of the tax year to which the tax return relates (or if the notice to file a return was issued after 31 October, you could amend the tax return within 15 months of that notice being issued).

As a result, you usually have until 31 January 2024 to make any changes to your 2021/22 tax return. This is applicable whether you manually filed a paper copy of the return or electronically filed the tax.

If you need to modify your tax return beyond these time limits, you need to inform HMRC to correct your tax position. If additional tax is due, HMRC will issue an amended calculation once the errors are rectified, and there may be penalties.

How to decrease income tax if you're self-employed?

You don't pay income tax on total income. Instead, you can subtract various allowable expenses from your total trading profits. To pay the correct tax amount, keeping track of and deducting all of your allowable expenses is crucial.

Usually, you can claim expenses entirely and exclusively for business purposes – such as business purchases, marketing, advertising, salaries, accounting, business insurance, a business phone, etc.

There's also plenty of HMRC guidance about business expenses, and you should check whether there is any data from trade bodies particular to your industry.