Income Tax and NI (National Insurance)

Income Tax and NI – You pay the same income tax on self employed income as you do on income from employment. You have the same tax allowances, tax bands and tax rates as someone in employment.

As a self employed person, you pay income tax on your profit: the difference between your turnover (the payments you receive from customers) and your business costs (allowable expenses).

Even if you not draw on the profits you have made – for example if you leave it in the bank account – you still pay tax on it.

What happens if I’m employed and self employed at the same time?

You can be employed and self employed at the same time.  For example you might work one or two days a week for an employer and on other days have your own clients.

Your income from employment and self employment will be combined to work out your tax and national insurance.  You have a single tax allowance and the tax bands will be spread across your employment and self employment income.  You pay the same rate of tax on both forms of employment, but the national insurance rates are different.

You’ll declare both your employment and your self employment on your self assessment return.  There are separate pages for each employer and to declare your self employment turnover and expenses.

You’ll pay tax on your employment income via PAYE and this will be collected by your employer regularly through the year.  Your self employment income tax will be added to this when you complete your self assessment return to work out your total tax and national insurance liability at the end of the year.

Income Tax and NI help

The Triginta tax calculator will take account of your employment income to work how much extra you need to set aside to cover your self employed earnings

Self employed tax rates

The tax rates and allowances are shown in the table below.  If you pay income tax in Scotland the rates are different.

The Triginta self employment income tax calculator works out the amount of tax you have built up at any point in the year taking account of changes in your turnover and expenses and how much of your allowances and self employed tax brackets you have used [link].

You receive a personal allowance which is free of income tax.  The standard allowance for 202019-210 is £12,500 but this could be higher if you are married or in a civil partnership and your partner has transferred part of their personal allowance to you.  The tables below are based on the standard allowance.

UK except Scotland
Up to £12,500* Nil
£12,500to £50,000 20%
£50,000 to £150,000 40%
Over £150,000 45%
* When your income goes above £100,000 the personal allowance is withdrawn at a rate of 50%. This means that your effective rate of tax on income between £100,000 and £123,700 is 60%.

Scotland
Up to £12,500* Nil
£12,500 to £14,549585 19%
£14,549585 to £24,94425,158 20%
£24,94425,158 to £43,430 21%
£43,430 to £150,000 41%
Over £150,000 46%
* When your income goes above £100,000 the personal allowance is withdrawn at a rate of 50%. This means that your effective rate of tax on income between £100,000 and £123,700 is 60%.

National Insurance for self employed people

Self employed people pay class 2 and class 4 National Insurance Contributions (NICs).

Class 2 National Insurance is a fixed rate of £3.005 per week in 202019-210 as long as your profits are above £6,365475.

Class 4 National Insurance is

  • 9% of your profits between £8,6329,500 and £50,000, and
  • 2% of profits above £46,35050,000

The Triginta self employed national insurance calculator works out how much Class 2 and Class 4 NICs you have built up at any point in the year, taking account of changes in your turnover and expenses and how much of your allowances and bands you have used.

The government initially proposed that class 2 self employed NI contributions would be abolished but this proposal was withdrawn in Budget 2018.

You don’t pay self employed NICs after you have reached the state pension age.

If you found ‘Income Tax and NI’ a good read, you may enjoy the next section ‘Turnover and Expenses

Income Tax and NI