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When you go self-employed, tax is a major point of confusion. Whether you’re a COVID mask maker, an exotic dancer, a professional footballer, a landlord, a consultant, a trader, or anything else, almost all of us get stuck when it comes to our tax liabilities.
Three big questions are:
And because we’re TaxScouts, we’ve written this article to answer all of those questions for you right here, right now.
The tax that you owe is based on what you earn over a 12 month period. The period that most people use is the tax year – 6th April to 5th April in any given two year period – but you are allowed to choose your own basis period. That said, we’d recommend sticking with the tax year unless there’s a specific reason that you want to use a different one. Why make it more complicated, right?
In the 2023/24 tax year, you calculate what you owe between 6th April 2023 to 5th April 2024. Any business spending during this period can be deducted from your total.
When it comes to recording your income, it’s worthwhile creating spreadsheets for each tax year. You can split them into monthly tabs and record both your income and expenses. That will help when it comes to the dreaded tax return time. That way, you won’t have to scramble with a highlighter and bank statement at the 11th hour.
What you earn in each tax year is what will be totaled and taxed. Use our calculator to work out how much you might owe.
When you’re self-employed, you have to pay your income tax and national insurance contributions yourself in your annual Self Assessment. Our calculator helps you quickly assess how much you owe.
However you may be eligible for a tax refund when:
In your case when you earn £50,000:
You pay no income tax on first £12,570 that you make
You pay £7,286 at basic income tax rate (20%) on the next £36,430
No contributions on the first £9,568 that you make
You pay £3,549 in contributions (at 9%) on the next £39,432 that you make
You pay £159 in NI Class 2 contributions
Here’s another mind bender. You’re probably aware of the 31st January tax return deadline. But in what year are you first liable to pay? You might be surprised to learn that you don’t owe tax until nine months after the tax year that you worked in ends.
For anyone who started working freelance (or earning untaxed income) later than 6th April 2023, you don’t need to do a tax return until 2025.
As if it weren’t already complicated with the April to April year?!
This all depends how much you earn. When you’re self-employed, there are two types of tax that you might be liable to pay:
In the 2023/24 tax year, you’ll be charged at the below rates for both. But be aware that these can change from year to year.
|Up to £12,570||0%||Personal allowance|
|£12,571 to £50,270||20%||Basic rate|
|£50,271 to £125,140||40%||Higher rate|
|over £125,141||45%||Additional rate|
|Self-employment profits||Class of National Insurance||How much do I pay?|
|over £6,725||Class 2||£3.45 each week|
|over £12,570||Class 4||9%|
|over £50,270||Class 4||2%|
If you have any more questions about how or when to file your tax return, don’t hesitate to give our support team a buzz. You can catch them on [email protected].
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