Learn how self-employed income tax works, how to file your tax return, and what supplemental tax return parts and paperwork you might need to fill out
What is self-employed income tax?
If you’re self-employed, pay you’ll income tax in a different method than hired workers, as it’s charged on your profits rather than your gross income via a self-assessment tax return.
To find out the exact sum, you need to deduct your business expenses from your income – this includes both business expenses and larger capital allowances.
You can also deduct any losses carried over from previous years.
The resulting quantity of profit is what you’ll be taxed on.
How do you file a tax return as a self-employed person?
You can either file your tax return online, fill out a paper tax return or use commercial software.
HMRC gives a list of commercial software providers you can choose from.
When you first decide to be self-employed, you should register your firm with HMRC as soon as possible.
If you’ve never submitted a self-assessment tax return before, be you’ll assigned a Unique Taxpayer Reference (UTR) number and you’ll also be registered for Class 2 National Insurance contributions (you’ll pay these automatically if your income is over a certain amount, otherwise you can choose to pay them voluntarily).
Submit your return:
to tot up your cost and send your tax return direct to HMRC, use the Which? tax calculator.
Which self-employment supplement should I choose?
It’s crucial to make sure you declare all relevant income on your tax return; most income streams are given different areas if you file online.
If you file a paper tax return, you’ll need to fill out supplemental pages.
The major self-assessment section taxpayers need to fill out is SA100 and it’s the first section you’re sent to if you file your return online.
If you’re self-employed, you’ll additionally need to fill out the section SA103S (the short form) or SA103F (the complete version) (the full version).
You can fill in the short one if your turnover for the 2021-22 tax year was £85,000 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 pick to produce your books for each year – isn’t the same as your basis period (ie your business year, which is the time HMRC assesses your tax on).
This means many people won’t be able to use the short supplement in their first year of trading.
It’s up to you to make sure you utilize the proper supplement, so if you decide for the short form be sure there are no difficulties 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 received a self-employed income support (SEISS) grant?
If you got any grants as part of the government’s self-employed income assistance plan, you’ll need to report these on your tax returns as they are taxable.
Grants 1, 2 and 3 should already have been included on your 2020-21 tax return.
Grants 4 and 5 should be included in 2021-22 tax returns.
The correct location to add this income is the portion that directly relates to SEISS grants, on a page named ‘Other tax adjustments for your business trading name’.
What if I’m a lone trader with a limited business or partnership?
In addition to the supplements already mentioned, if you’re in partnership, you need the partnership supplement (SA104), which also has a complete and a short version.
If you’re the director of a limited company, you will count as an employee of the business for tax purposes, and will consequently need to fill out the employment supplement (SA102) (SA102).
What are the self-employed income tax rates for 2022-23?
When it comes to paying income tax, there aren’t any distinctions in the tax rates you pay compared with employees.
You can use our income tax calculator to find out how much you’ll pay.
In 2022-23, self-employed workers and employees pay:
0 percent on the first £12,570 you earn.
20 percent on income between £12,571 and £50,270.
40 percent on income between £50,271 and £150,000.
45 percent on income over £150,000.
This is unchanged from 2021-22.
Tax bands, rates and allowances are different in Scotland – see our dedicated guide to find out what you’ll pay.
National Insurance for the self-employed
The story is different when it comes to National Insurance contributions. Self-employed people pay a reduced rate of National Insurance compared with employees.
The self-employed have to make Class 2 and potentially Class 4 contributions, depending on how much they earn.
In 2022-23, Class 1 and Class 4 National Insurance rates increased by 1.25 percentage points due to a new health and social care tax.
In 2022-23 you pay Class 2 payments if you earn more than £11,908, levied at £3.15 a week.
Between the 6th of April until the 5th of July, Class 4 payments will be due on profits that are greater than £9,880 at a rate of 10.25 percent; after the 5th of July, the threshold will increase to £12,570. On earnings in excess of £50,270, you’ll be subject to a 3.25 percent tax.
If you earned more than £6,515 during the financial year 2021-22, you were required to make Class 2 contributions, which cost £3.05 per week.
Contributions for Class 4 were due at a rate of 9 percent on profits more than £9568, with that rate reducing to 2 percent on earnings greater than £50270.
Learn everything you need to know about national insurance for self-employed people by reading our guide.