When you’re self-employed, you’re responsible for paying tax and National Insurance on your income. It’s important to stay on top of all your records to work out how much you need to pay.
What’s in this guide
Working out your employment status
To work out how much tax and National Insurance you should pay, first you need to know whether you’re employed or self-employed.
This is usually straightforward, but sometimes it’s a bit more complex. For example, you could be employed in one job and at the same time be registered as self-employed in a different job.
The HM Revenue & Customs (HMRC) website has a tool that works out your employment status for you based on your answers to a series of questions.
Be aware that this is only an indicator and won’t give you a definitive answer on your employment status.
Use HMRC’s ‘check your employment status’ service at GOV.UKOpens in a new window
Find out more in our guide Employment contracts and your employee rights explained
Registering as self-employed
As soon as you become self-employed, it’s important to tell HMRC.
The very latest you can register with HMRC is by 5 October after the end of the tax year during which you became self-employed.
For example, if you started your business in June 2022, you would need to register with HMRC by 5 October 2023.
The tax year runs from 6 April one year to 5 April the next. If you register too late, you might need to pay a penalty.
Find out more, including registering as self-employed, in our guide How to fill in a Self Assessment tax return
How much can you earn tax-free if you’re self-employed?
Disguised Remuneration Schemes
Were you paid through a loan from your employer, and haven’t yet paid the tax you owe in full or agreed a payment plan by September 2020? Then it’s important that you contact HMRC as soon as possible.
Find out more about what you should do at GOV.UKOpens in a new window
If you’re self-employed, you’re entitled to the same tax-free Personal Allowance as someone who’s employed.
For the 2023/24 tax year, the standard Personal Allowance is £12,570. Your personal allowance is how much you can earn before you start paying Income Tax.
If you earn over £100,000, the standard Personal Allowance of £12,570 is reduced by £1 for every £2 of income you earn over the £100,000 limit for the 2023/24 tax year.
However, if you have two jobs and one is self-employed, things are a little more complicated.
You only get one Personal Allowance, which is usually applied to what HMRC see as your main employment.
It’s usual to have your Personal Allowance is applied to the job paying you the most.
Find out more in our guide Second job tax and pay
The easiest way to find this out is to look at the tax code. Your main job should have the tax code 1257L for the 2023/24 tax year. Your secondary job will have the tax code BR, D0 or D1.
Find out more about what the different tax codes mean at GOV.UKOpens in a new window
Trading and Property Allowance
You can earn up to an extra £1,000 tax-free from what’s called the trading or property allowance.
If your income is less than £1,000, you don’t need to declare it.
If your income is more than £1,000, you’ll need to register with HMRC and fill in a Self Assessment Tax Return.
However, it’s important to remember that if you claim this allowance, you can’t deduct business expenses.
Are your expenses more than £1,000? Then, you’re generally better off not claiming the allowance and deducting your expenses on your Self Assessment tax return.
Find out more about the trading and property allowance at GOV.UKOpens in a new window
Income tax when self-employed
When you’re self-employed, you pay income tax on your trading profits – not your total income.
To work out your trading profits, simply deduct your allowable business expenses from your total income. This is the amount you’ll pay Income Tax on.
Find out more about expenses you can claim for on your Self Assessment tax return in our guide How to fill in a Self Assessment tax return
The amount of income tax you pay on your trading profits is the same as if you were employed.
The table below shows the rates of Income Tax, depending on how much you earn.
| Rate | 2023/24 | 2023/24 |
|---|---|---|
|
Personal allowance: 0% |
£0 to £12,570 you will pay zero income tax on your profits |
£0 to £12,570 you will pay zero income tax on your profits |
|
Basic rate: 20% |
£12,571-£50,270 you will pay 20% tax on your profits |
£12,571 to £37,700 you will pay 20% tax on your profits |
|
Higher rate: 40% |
£50,001-£150,000 you will pay 40% tax on your profits |
£37,701-£125,140 you will pay 40% tax on your profits |
|
Additional rate: 45% |
Over £150,000 you will pay 45% tax on your profits |
Over £125,140 you will pay 45% tax on your profits |
Remember, you don’t pay Income Tax at the same rate on all your trading profits. You only pay the rate of Income Tax on your trading profits in the bracket. For example, if you earn £55,000 a year the Income Tax you’ll pay for 2023/24 works out like this:
| Trading profit | Income Tax band | Tax you pay |
|---|---|---|
|
Up to £12,570 |
0% |
No Income Tax on first £12,570 |
|
Between £12,571 and £50,270 |
20% |
20% Income Tax on your next £37,500 trading profits. (£50,270–£12,570 = £37,700) |
|
Between £50,001 and £125,140 |
40% |
40% Income Tax on the final £4,730 (£55,000-£50,270=£4,730) |
If you live in Wales, your Income Tax rates are now set by the Welsh Government. At the moment, these are the same as for England and Northern Ireland for the 2023/24 tax year.
If you live in Scotland, your Income Tax rates are set by the Scottish Government and are different.
If you live in Scotland, find out about the different Income Tax rates you’ll pay in our guide Scottish Income Tax and National Insurance
National Insurance Contributions if you’re self-employed
National Insurance contributions pay for certain benefits, including the State Pension and Universal Credit.
Certain benefits are also based on the contributions you’ve made.
Do self-employed workers pay National Insurance?
Yes. Most self-employed people pay Class 2 NICs if their profits are at least £6,725 during the 2022/23 tax year. Or £6,725 in the 2023/24 tax year.
If you’re over this limit, you’ll pay £3.15 a week, or £163.80 a year for 2022/23 (£3.45 a week or £179.40 a year for 2023/24).
Paying Class 2 contributions is voluntary for self-employed people with profits below the Small Profits Threshold. Paying Class 2 National Insurance contributions, even if your profits are lower, can still help you build contributory entitlements to benefits and the State Pension.
If your profits are £11,908 or more in 2022/23 (£12,570 in 2023/24), you’ll also pay Class 4 National Insurance contributions.
If you’re over this threshold, you’ll pay 9% on profits between £11.908 and £50,270 in the 2022/23 tax year (£12,570 and £50,270 in 2023/24), and 2% on anything above this.
From April 2024, if you’re self-employed:
you will no longer need to pay Class 2 National Insurance contributions
the rate of Class 4 National Insurance contributions will be cut by 1%.
Find out more about National Insurance contributions at GOV.UKOpens in a new window
How to pay tax and National Insurance when self-employed
Find out more in our guide How to fill in a Self Assessment tax return
HMRC have some useful guides, videos and webinars to help you register and complete a Self Assessment tax return. Find out more at GOV.UK
Corporation Tax
Are you running a private limited company (Ltd) or limited liability partnership (LLP)? Then you’ll also need to pay Corporation Tax on your business profits.
You might also have to submit a Self Assessment tax return for any money you earn through the company.
