The Income Tax Guide For Freelancers And The Self-Employed
Even if you’re new to self-employment, you’ll have likely heard of Income Tax before. When employed, the vast majority have it automatically deducted from their wages. Suddenly finding yourself required to subtract it from your earnings can feel like quite the burden.
If you’re concerned you won’t do this correctly, then don’t worry. We’ve simplified it all for you in this handy Income Tax guide…
Personal tax allowance
The Personal Allowance is something that applies to those who are employed also, so you might have come across it before. It allows you to take home a specific amount tax-free, with the allowance being the same regardless of your employment status.
Generally, the amount you’re entitled to changes every year. For 2017/18, it is £11,500. From 6th April 2019, this will increase to £11,850, and then again to £12,500 for the 2019/20 tax year.
Whilst the allowance is the same regardless of if you work for yourself or not, there is a difference when it comes to paying the Income Tax. You don’t owe it on the collective sum of your earnings, but instead on your profits. We explain this in more detail in the next part of our tax planning guide.
Paying self-employed Income Tax
Your profits are not the same as your gross income. They require certain expenditures to be deducted to establish how much you’ve actually earnt. This means you will have to work out specific tax calculations.
You would subtract any allowable business expenses from the total. These include travel outgoings (like those for business trips), legal and financial fees, and office costs. If you use your home as your self-employment premises, then you may be able to reduce your Income Tax further.
Any losses in previous tax years can be carried over and deducted from your earnings also. Additionally, you can subtract capital allowances such as specific equipment, and offset these.
This will leave you with your profits. If the total amount is under the current personal allowance threshold, then you will not owe any Income Tax. However, if the sum is above this, you’ll be required to pay a figure that’s dependent on your profits.
Tax brackets
The higher your profits, the greater the percentage of tax you’ll pay will be. This is determined by your tax bracket. The rates are as follows for the subsequent tax years:
| Rate | 2017/18 | 2018/19 | 2019/20 |
| Personal Allowance (0%) | £0-£11,500 | £0-£11,850 | £0-£12,500 |
| Basic rate (20%) | £11,501-£45,000 | £11,851-£46,350 | £12,501-£50,000 |
| Higher rate (40%) | £45,501-£150,000 | £46,351-£150,000 | £50,001-£150,000 |
| Additional rate (45%) | £150,001+ | £150,001+ | £150,001+ |
Declaring your Income Tax
Once you’ve figured out how much Income Tax you need to pay, you’ll need to record it on your Self Assessment tax return. Unless you’ve earnt less than £1,000 in the given tax year, then you’ll be required to submit this. To do so, you need to register and have a UTR number.
The information you include in your Self Assessment and the tax you pay will depend on your circumstances. Regardless of your company structure, the likelihood is that you will owe National Insurance contributions too. If you run a limited company, then you would also need to pay Corporation Tax.
To reduce the Income Tax you pay, you should provide the appropriate evidence. For expenses, this would include receipts. Therefore, remembering to obtain verification of costs like fuel or bills is vital – as is making sure this doesn’t get lost before the Self Assessment is due.
Make taxes simple with Self Assessment software
Holding on to receipts isn’t the most efficient way to keep on top of your taxes. A much more effective way is to take photos of them via tax return software. They can be captured and stored within GoSimpleTax instantly, for example, meaning you won’t have to search for them at a later point.
Streamlining the process, they will be there for you to complete the tax return when the time comes.
This isn’t the only way GoSimpleTax makes your Self Assessment straightforward. It also acts as your own tax calculator. Simply input the relevant information, and it works out all the sums for you. You won’t have to be a tax expert – it even offers tax-saving suggestions so your liability is reduced.
These calculations are formulated in real time too. You’ll be able to obtain a full picture of your finances at any point in the year. This will allow you to keep on track, and ensure you don’t accidentally spend your owed tax before the Self Assessment tax return deadline.
To discover these benefits for yourself, why not take a free 14-day trial of our tax return software today?