Self-Employed National Insurance and Income Tax

If you’re just starting out with your career as a self-employed individual, National Insurance and income tax can be a bit of a minefield. And, it can be extra confusing if you’ve always worked for a business and are used to your company handling it all for you.

If you’re struggling to get your head around how much National Insurance you need to pay or are looking for more information on self-employed tax, you’ve come to the right place. Keep reading to find out what is personal allowance, and all about the different National Insurance and income tax rates.

What is income tax?

Income tax is the tax you’ll pay on any earnings you make. This could be anything from wages, business profits, pensions, rent if you’re a landlord or interest from savings. Income tax goes towards paying for public services like the NHS, schools and education, roads, rail and housing. If you’re self-employed, income tax is only applied to your profits, not the total profits, so when you fill out your self-assessment tax return, you’ll need to deduct your expenses to work it out.

What is personal allowance?

No matter if you’re self-employed or working for a business, most people qualify for a personal allowance. You may be wondering ‘what is personal allowance’? To answer quite simply, it’s the amount of money you can earn before you start paying tax. The standard tax-free allowance for 2021/2022 is £12,570, but this may be larger if you have other allowances too such as a marriage allowance or a blind person’s allowance. Additionally, if you have a taxable income over £125,140 per annum, you won’t be entitled to a personal allowance.

Current income tax rates:

  • If your profits are between £0 – £12,570, you won’t pay any income tax as this will fall below the current personal allowance
  • If your profits are between £12,571 – £50,270, you’ll pay 20% tax
  • If your profits are between £50,271 – £150,000, you’ll pay 40% tax
  • If your profits are over £150,000, you’ll pay 45% tax

Self-employed National Insurance

Your National Insurance goes towards paying for certain state benefits and pensions. If you’re working for yourself, you’ll need to pay self-employed National Insurance if you’re over 16 and are earning more than £6,515 per annum.

There are different types of insurance classes based on your current employment status and how much you earn, but usually self-employed National Insurance will be one of the following:

  • Class 2: For those earning at least £6,515, the current rate of National Insurance for the 2021 to 2022 tax year is £3.05 a week for this class.
  • Class 4: For those earning more than £9,569, the current rate of National Insurance for the 2021 to 2022 tax year is 9% for any profits between £9,569 and £50,270, and 2% on any profits over £50,270.

How do I pay for my National Insurance or income tax?

You’ll pay for your self-employed income tax and National Insurance when you submit your self-assessment tax return. Once you’ve submitted it, you’ll be told how much you owe and the current deadlines for payment. You’ll need to make sure you submit your payment before the deadline stated, as otherwise you may face a self-assessment fine or penalty.

It’s worth noting that some won’t have to pay self-employed National Insurance, but can pay voluntary contributions instead. This rule applies to people in the following jobs: ministers of religion, examiners, moderators and invigilators, people who run land or property businesses and those who make investments – providing it’s not a business and they don’t receive a fee or commission.

Can Accountancy Solutions help with my National Insurance and income tax?

Yes, we can! If you’re struggling to get your head around National Insurance and income tax rates, there’s no need to worry as we’re here to help. If you choose to hire our services, you’ll get your very own personal accountant who will assist you in figuring out your finances and what’s more, will contact HMRC on your behalf and always ensure that your self-assessment tax returns are handed in on time.

Want to find out more about the services we offer? Contact us online or ring us on 01633 288 299 to kickstart the process.