If you are employed or self-employed working as a freelancer, calculate how much tax you owe on your income.
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Employee vs Self-employed Calculator (Guide)
- Employed and self-employed Tax calculator
- What does it mean to be employed and self-employed?
- Difference between employed vs self-employed
- Why Does the difference between employed and self-employed matter?
- Why should you set up as a self-employed individual?
- How to calculate employee vs self-employed tax?
- How does this calculator work?
- How much can you make tax-free if you're self-employed?
- Income tax
- National Insurance Contributions
- How can I reduce my income tax by claiming business expenses as self-employed?
- Self-employed allowable expenses list
Employed and self-employed Tax calculator
Working out your take-home pay after taxes, whether you're employed, self-employed, or a combination of both, can be challenging. With our employed and self-employed take-home pay calculator, you can quickly determine how much income tax and National Insurance you owe.
What does it mean to be employed and self-employed?
When it comes to taxes, your employment status is essential. When employed, i.e. you work in a company, you're taxed on a Pay As You Earn (PAYE) system. It implies that your company deducts the income tax and NI from your salary
When you're self-employed, the approach is different. You don't have a company to deduct your taxes automatically, so the burden is on you to sort it out.
You file a tax return to declare your untaxed income and pay taxes.
But what about people who work full-time but also run side businesses or freelancing projects? From the perspective of HMRC, these individuals are both employed and self-employed. Simply put, you are automatically and manually subject to taxation through a tax return.
Difference between employed vs self-employed
While you have a fixed monthly salary as an employee, if you work for yourself, you can significantly increase that income.
However, you should have a solid customer base to make more than your monthly salary. If you are self-employed, your marketing and advertising strategies to attract new customers will impact your monthly income.
The business you work for will deduct tax from your wage as an employee. But if you are self-employed, you must handle and pay your taxes.
As an employed individual in the organization, some deductions are typically taken out of your monthly salary. These deductions mostly go towards your pension.
You must create your pension structure individually if you are self-employed.
Why Does the difference between employed and self-employed matter?
HMRC has implemented their programme of "Status Reviews". A Status Review includes the contractual relationship between the individual doing the work and the individual paying for it to determine whether employment exists.
The penalties could be severe if you've been employing someone as self-employed and the Status Review finds that they are an employee. HMRC will anticipate that the employer will pay the NIC and income tax that should have been deducted under the PAYE system, together with the Employer's NIC contributions.
In many cases, neither the staff nor the company paying wants an employee/employer relationship. Therefore the company can't complete the job if it has to be done by the employees. In these scenarios, it is essential to ensure that the way the contract is structured will survive a Status Review, and what follows are some general rules to be considered.
Why should you set up as a self-employed individual?
There are many perks of being self-employed, some of which are listed below:
- You have more control and flexibility, so integrating work with other responsibilities and commitments, including childcare, may be easier.
- Your work can be more diverse, as you may be working on multiple projects for various clients at any time.
- You can develop an entrepreneurial and creative side.
- You're more inclined to conduct business from your own office or home.
There are also numerous financial benefits if you're self-employed. When determining your tax liability, you can deduct business expenses, including bills and travel expenses.
Meanwhile, day rates for self-employed freelancers and consultants tend to be much higher than salaries, so there's potential to make more money.
How to calculate employee vs self-employed tax?
The self-employed take-home pay calculator determines your take-home income after taxes whether you work as employed, self-employed, or have a combination of both. With our employed vs self-employed tax calculator, you can quickly determine how much income tax and national insurance you owe.
As an employee, the PAYE system enables your employer to deduct and calculate both NI and income tax contributions from your paycheck.
However, you must prepare and submit your self-assessment tax return if you are self-employed. If you work and run a side business that brings in more than £1,000 a year, you must submit a Self-Assessment tax return and pay income tax and National Insurance.
How does this calculator work?
- Whether employed or self-employed, you can use this calculator to determine and compare your take-home pay.
- Enter your annual salary or annual income.
- The calculator will calculate your take-home income. You can see the breakdown of National insurance and income tax contributions.
- The calculator assumes that you are entitled to a personal allowance.
How much can you make tax-free if you're self-employed?
The same tax-free Personal Allowance is available to self-employed individuals as it is to employees. The standard Personal Allowance for 2023–24 is £12,570.
Your personal allowance is the money you can make before paying income tax.
The standard Personal Allowance of £12,570 is lowered by £1 for every £2 over the £100,000 income.
Employee's PAYE and NI breakdown
Your company in England and Wales deducts all these charges from your monthly pay.
Take a look at the tax rates for the tax year 2023-24 below:
|Up to £12,570
|£12,571 to £50,270
|£50,271 to £125,140
National Insurance Contributions
- National Insurance contributions are not due on the first £12,570.
- You pay 10% (12% till 05 January 2024) of your income for between £12,570 and £50,270.
- Over £50,270, you pay 2% more.
But this is not all. Additionally, your employer makes separate 13.8% employer NI contributions.
For self-employed: Income tax and NI breakdown
Individuals who are employed and self-employed both pay the same income tax rate
National Insurance Contributions
- You don't have to pay class 4 NI contributions on the first £12,570.
- You pay 9% of your salary for between £12,570 and £50,270.
- Over £50,270, you pay 2% more.
How can I reduce my income tax by claiming business expenses as self-employed?
As a self-employed or freelancer, whatever you earn over the personal allowance is taxable. However, HMRC will frequently not tax you on the amount you need to spend to keep your business running.
For this reason, you can deduct many of the expenses directly connected to your work (such as travel between customers, advertising, and marketing) from gross income when calculating how much tax you must pay.
Therefore, these costs are referred to as "tax deductible." You can use the tax calculator uk self employed to determine your taxes.
Self-employed allowable expenses list
The following is a list of the most common allowable costs you can claim from your income tax:
- Office supplies
You can claim office supplies such as printing costs/ ink, postage, phone and internet bills, stationery, and software for under two years (or on subscription).
- Office equipment
If you utilize cash basis accounting, you can deduct costs office equipment like computers, printers, and software that have been used for more than two years.
However, adopting traditional accounting will require you to claim capital allowances on these instead.
- Business premises
These include utilities, buildings, insurance, maintenance repair, rent, business rates, security costs etc.
Remember that if you buy your premises, you cannot deduct any portion of the purchase price as an expense.
- Legal and professional costs
Suppose you use professionals such as a financial adviser, surveyor, solicitor accountant etc. Only for business purposes you can claim their fees as expenses.
- Sales and marketing costs
These usually include marketing and sales personnel costs, paid media costs like google AdWords, Facebook campaigns, social media management etc.
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