How do I pay tax on self-employed income? | Low Incomes Tax Reform Group

How do I report my self-employed income?

When you have calculated your taxable profits from self-employment, you will need to report that income to HM Revenue & Customs ’ ( HMRC ) sol that you can pay the correct sum of tax, unless you are entitled to trade allowance full respite. If this is the sheath you may not need to report this income to HMRC .
once you have registered as freelance with HMRC you will receive a notice curtly after the end of the tax year to tell you that you need to complete a tax reappearance for the tax class that has good finished. See How do I register for tax and National Insurance ? for more information .
In 2015, the government announced their intention to abolish Self Assessment tax returns. The tax return system will finally be replaced by HMRC ’ mho ‘ Making Tax Digital for Income Tax ’ regimen for many freelance taxpayers. This new room of providing HMRC with details of self-employment income is presently in the original stage. It is due to come into impression from April 2024 onwards. For more data, see our section : What is Making Tax Digital for Income Tax and how will it affect me ? .

Do I need to include Coronavirus business support grants on my tax return?

You may have received fiscal support for your business during the Coronavirus pandemic. These grants may have come from your local authority ( such as the small commercial enterprise subscribe grants ), government departments ( for case the devolve administrations ) or from HMRC ( such as the Self-Employment Income Support Scheme ( SEISS ) grants ).

many of these grants are taxable and will need to be included on your tax return. See our foliate on Coronavirus payments for more data .
For each grant you have received you should check the conditions to see if it is taxable income and then if so, you need to work out which tax year it is taxable in, so that you know which tax tax return it needs to be included on. If the grants are taxable income, with the exception of the SEISS grants ( see below ), factors such as when you received the digest grant, your footing period and whether you prepare your accounts using the cash basis or the accruals footing will affect in which tax class they are taxable, and so which tax return they should be included on .
The 2021/22 tax return has a box on page 1 ( in the ‘ clientele income ’ section ) of the self-employment pages for Coronavirus business support income. For the SEISS grants, we have separate detailed steering on our foliate : SEISS : where do I include the grants on my tax render ?

When do I have to send my tax return to HMRC?

This depends on the date of issue of the poster that HMRC send you to tell you to complete a tax restitution and whether you complete your tax fall on wallpaper or on-line. The postpone below summarises the position .

Date of tax return or notice to file issued Deadline for lodging paper return Deadline for lodging return when HMRC will calculate tax (paper returns only) Deadline for lodging return online
On or before 31 July 31 October 31 October 31 January
1 to 31 August 3 months from date of notice 31 October 31 January
1 September to 31 October 3 months from date of notice 2 months from date of poster 31 January
After 31 October 3 months from date of notice 2 months from date of notice 3 months from date of detect

There are penalties for missing the deadlines for filing tax returns .
If you miss the submission date an automatic penalty of £100 for late file will be charged, even if you have no tax to pay or you have already paid the tax you owe. See our penalties page for more information .
however, if you miss the newspaper refund filing deadline you may inactive have time to register with HMRC for on-line file ( if you are not already registered ) and then submit the tax return on-line by the on-line filing deadline and so avoid a late filing punishment .
For 2020/21 tax returns, no deep filing penalties were issued if the tax return was filed on-line on or before 28 February 2022 ; see our news article for more details .
⚠️ An important point to note for those in business is that HMRC do not provide an online partnership return. Therefore, if you cannot file the partnership return by other means (such as via a tax adviser or using third party software) you must file a paper version of the return by the relevant paper due date to avoid late filing penalties.

What if I have problems in completing my tax return?

If you get a tax fall, please do not worry if you are not sure how to fill it in. You can contact HMRC for assistant. If you are concerned about completing the shape contact the earphone numeral on any of your Self Assessment commensurateness or HMRC ’ s Self Assessment helpline number. alternatively, you may wish to contact the charity TaxAid who offer help oneself to those on low incomes with tax problems. They can be contacted via their helpline 0345 120 3779 ( Monday to Friday, 9am to 5pm ) .

What if I make a mistake on my tax return?

If after you have filed your tax return you become mindful that an entrance is incorrect, you can amend that return. You have up to 12 months from 31 January following the end of the tax year to which the tax come back relates to make the amendments ( or if the comment to file a rejoinder was issued after 31 October, you can amend the tax return within 15 months of that poster being issued ) .
consequently, if you need to amend your 2020/21 tax come back you normally have until 31 January 2023 to make the amendment. This applies whether you manually filed a paper version of the reappearance or you filed on-line. Or if, for model, you did not receive a notice requiring you to file your tax recurrence for 2020/21 until 12 December 2021, then you can amend it up until 11 March 2023 .
If you need to amend your tax return outside of these time limits then you need to notify HMRC so that your tax side can be corrected. If extra tax is due HMRC should issue a revised calculation once the error is rectified and there may be penalties. If tax is overpaid due to the mistake, you should make a claim for overpayment relief to obtain a refund. You can read about how to do this in the department : How do I claim a refund if it is excessively late to amend my tax reelect ? .
GOV.UK explains how you can make an amendment to your tax tax return whether you have filed a paper tax return or an on-line tax recurrence using HMRC ’ s on-line arrangement or commercial software .
If you have claimed the fourthly and/or fifth Self-Employment Income Support Scheme ( SEISS ) grants, then you will need to consider whether amendments to your tax retort ( s ) mean you were not actually eligible to claim these grants or whether the accord ( randomness ) received should have been less. We have more guidance on this in our Coronavirus section .

Who calculates the amount of tax I owe?

If you submit your tax reelect on wallpaper, HMRC normally calculate your tax for you and send you a tax calculation, known as a phase SA302 .
If you send a paper tax hark back after 31 October ( which you should avoid doing, if possible, as you will incur a penalty for late file ), HMRC may calculate your tax, but they do not guarantee to tell you how much tax you owe in time for the payment deadline of 31 January .
If you submit your tax retort on-line, HMRC ’ s on-line system will calculate your tax mechanically, and you can view the calculation on-line or print it out .
You may already have had tax deducted from some income, for exemplar you are registered under the Construction Industry Scheme ( CIS ) or you are employed and freelance. In this situation you include all the income on the tax render, whether or not it has already been taxed, and besides include the tax that has been deducted at reference. however, do not include any tax paid as a requital on report. The tax calculation will then mechanically take explanation of any tax paid at source ( for case, through CIS or PAYE ) so the final place shown by the calculation will be the sum that is left to be paid through Self Assessment or to be refunded. Any payments on score already made should then be compared to the final position shown by the calculation to see whether there is any farther sum to pay ( known as the balancing requital ) or to be refunded .
Example: Chloe
Chloe is employed part-time and besides runs her own clientele. During the 2021/22 tax year she earns £15,000 from her job and pays tax through PAYE of £500, she besides earns profits of £4,000 from her self-employment. When Chloe completes her 2021/22 tax return she includes all her employment income and tax deducted through PAYE and her self-employment profits. Her tax calculation will look as follows ( ignoring National Insurance contributions for this illustration ) :

Tax calculation
employment income £15,000
Self-employment profits £4,000
sum income received £19,000
minus Personal Allowance ( £12,570 )
entire income on which tax is due £6,430
income tax due at 20 % £1,286
minus tax deducted ( £500 )
full income tax due by 31 January 2023 £786

⚠️ Important: If Chloe had been paying tax through payments on account then these would not show on HMRC’s calculation (either on the SA302 calculation or the online system) and should be considered separately when working out what tax is still left to pay.
We illustrate this below :
Assume that Chloe had higher profits in the 2020/21 tax year so was due to make payments on report totalling £1,200 for the 2021/22 tax year as follows :

  • 31 January 2022: £600
  • 31 July 2022: £600

When Chloe submits her 2021/22 tax render on-line in November 2022 her sum income tax due would hush show as £786 even though she is actually due a refund of £414 ( £600 +£600 less £786 ) as she has overpaid her tax through payments on account. Chloe will need to deduct her payments from the on-line calculation to work out she is due a refund. After the on-line tax restitution has been automatically processed Chloe should be able to see that she is due a refund in her HMRC personal tax report and claim this back from HMRC .

When do I pay income tax on my self-employed profits?

You pay tax on your freelance profits at the same time as you pay tax on all of your other income for a tax year under Self Assessment. Remember you pay Class 4 National Insurance contributions ( NIC ) at the lapp time as your income tax .
From here on, we will refer to income tax, but that should be taken to include Class 4 NIC. For information on when you pay your Class 2 NIC see our section How and when do I pay my Class 2 and Class 4 NIC? .
generally speaking, you pay your income tax for a tax year in three instalments as follows :

date Amount account payable
31 January during the tax year 50 % of anterior year income tax liability ( known as first payment on account )
31 July following the tax class 50 % of prior year income tax liability ( known as second payment on account )
31 January following the tax class balance of any income tax due ( known as balancing payment )
PLUS first gear requital on account for following tax class

⚠️ Note: Class 2 NIC, Capital Gains Tax, and/or student loan repayments due are always paid as part of the balancing payment and are not included in payments on account.
Example: Marcus
Marcus has an income tax ( including Class 4 NIC ) indebtedness of £2,500 for 2020/21 and he besides has a course 2 NIC liability of £158.60, Therefore his sum payments for the 2020/21 tax class are £2,658.60. His income tax ( including Class 4 NIC ) indebtedness for 2021/22 is £3,500, and his classify 2 NIC charge is £158.60 .
His payments for 2021/22 are as follows:

31 January 2022 £1,250 ( 50 % of £2,500 )
31 July 2022 £1,250 ( 50 % of £2,500 )
31 January 2023 £2,908.60 which is £1,000 ( balancing payment )
PLUS £1,750 ( 50 % of £3,500 )
PLUS £158.60 ( Class 2 NIC for 2021/22 tax year )

You will see that in this shell for Marcus there are two amounts being paid on 31 January – the proportion due for one year and a payment on account for the follow class .
If you do not come within the payments on account government ( see section below ) then you normally have to pay any amounts that you owe to HMRC by the 31 January following the end of the tax year in motion. therefore, if you owe anything for the 2021/22 tax year this is normally due by 31 January 2023. An exception is where you owe capital gains tax on the administration of UK residential property ( or, if non-resident, any UK down or property ) .
See our section : When do I make Self Assessment payments and file my tax render ? for more information .

What are payments on account?

⚠️ Note: References to ‘income tax’ include Class 4 NIC.
Payments on account are basically a way of paying some of your income tax poster in advance. You normally have to make a requital on account if your former year ’ s income tax bill ( excluding Class 2 NIC ) was over £1,000, unless more than 80 % of your former year ’ s income tax was taken off at source. Income tax will be taken at informant if, for exemplar, you are besides employed adenine well as freelance, through Pay As You Earn ( PAYE ) or have deductions at source if you are a subcontractor under the Construction Industry Scheme ( CIS ) .
Example: Robert
Robert ‘s income tax liability ( excluding Class 2 NICs ) for 2021/22 is £2,800. PAYE and tax paid at reference cover less than 80 % of the sum due. Robert will need to make payments on account for 2022/23 ( the class to 5 April 2023 ) .
The payments on explanation are based on your full income tax bill for the former year but excluding Class 2 NIC. So you must first deduct any Class 2 NIC total and if you need to make payments on account, each one will be half of this measure. They are ascribable on 31 January during the tax class and on 31 July following the tax class .
On 31 January you besides pay any balance of income tax due for the previous tax year together with the class 2 NIC due for that year, so you may have two amounts of tax to pay ( the balance payment for the previous year and the beginning payment on account for the current tax year ), but you can pay both in concert as a single entire .
Example: Robert continued
By 31 January 2023 Robert will need to pay his 2021/22 income tax liability and his class 2 NIC for 2021/22 and will besides need to make a requital on account for the tax year 2022/23 ( year ending 5 April 2023 ) .
His 2022/23 payments on account will be based on half of his 2021/22 income tax liability .
Robert will therefore motivation to make payments on account of £1,400 on 31 January 2023 and £1,400 on 31 July 2023 .
If HMRC make an amendment to your render or you notify them of an amendment that will increase the tax ascribable, any supernumerary tax will be account payable 30 days from the date of the amendment although interest will run from the date that the tax should have been paid .

I expect my tax bill to be less this year than last year. What can I do?

⚠️ Note: References to ‘income tax’ include Class 4 NIC.
You can apply to reduce your payments on bill. You can do this at any clock time using form SA303 either on-line or in paper form up to when the balancing payment is due. You can besides make the claim on the previous year ‘s tax hark back giving details of the circumstances in the extra information corner at the end of the mannequin .
⚠️ Please bear in mind that if you reduce your payments on account below what they should in fact have been you will have to pay interest on the shortfall from the date each payment on account was due. In some cases, HMRC may charge a penalty if the reduction is excessive. Any taxable coronavirus support payments such as grants received under the Self-Employment Income Support Scheme (SEISS) are treated as taxable income and should be included when calculating any reduction in payments on account.
Example: Robert continued
Robert ‘s income for 2022/23 is likely to be much lower than that for 2021/22, so he can claim to reduce his payments on explanation. Robert works out that he will have an income tax beak for 2022/23 of around £2,200. The reduction will be £600. He consequently claims to reduce each of his 2022/23 payments on account by £300 each .
On 8 February 2023, Robert realises that he has reduced his payments on account by excessively much. He thinks he will have an income tax circular for the class 2022/23 of near £2,500 and not £2,200 .
Robert contacts HMRC to let them know he will need to pay more on each episode. He has already paid the 31 January 2023 installation of £1,100 ( half of £2,200 ) therefore he needs to pay a further £150 on that installment and he will besides need to pay £1,250 by 31 July 2023. He sends a cheque with his letter, which HMRC received on 12 February 2023 .
The July installation was not due when Robert notified them so there is no extra interest to pay but he will have to pay interest on the extra £150, which should have been paid with the first installment on 31 January 2023. The sake will run from 1 February 2023 to 12 February 2023 – the date HMRC received payment of the £150 .

I have already paid a payment on account, but now realise I paid too much. What can I do?

You should however complete form SA303. Any excess that you have paid can be refunded to you a long as it is at least 30 days until your adjacent payment is due, or it can be held by HMRC and set against the future payment when it becomes due. If your following requital is due within 30 days, the refund will automatically be held and will be set against the adjacent payment due .

I have never paid payments on account before, but for the 2021/22 tax year I have been asked to pay. Why is that?

The fact that you have to make payments on history towards the 2021/22 tax year suggests that either your income has increased, or that a higher proportion of your income has not suffered tax at source. Please note the Self-Employment Income Support Scheme ( SEISS ) grants and many early coronavirus business support grants are taxable income and may result in you moving into payments on bill in obedience of the 2021/22 tax year for the first prison term .
You only make payments on account if your previous year ’ s income tax and class 4 NIC bill was above £1,000 and only then if less than 80 % of the indebtedness was collected by being deducted at reservoir from the income .
⚠️ Top tip: It can be quite a shock to your cash flow when you first move to payments on account. It may help you to put aside a certain amount each time you get paid into a different bank account (see below). If you submit your tax return as soon as possible it will give you more time to save up for both the current tax which is due and your payments on account for the following tax year.

How can I best prepare for my tax bill?

For most people, setting aside a rough share ( % ) of their ‘ final ’ income each time they are paid ( after any expenses ), will help make certain that their tax bill, along with the payments on account, can be met. Our table may help you work out your rough % using 2022/23 rates assuming you are using the cash footing or if using the accruals footing you get paid promptly. Please note this does not include Class 2 NIC and that these are based on UK income tax rates see our webpages for information on scottish rates of income tax and the Welsh rates of income tax :

Net income Total first year’s tax and Class 4 NIC (excluding Class 2 NIC) First year’s payment PLUS next year’s POAs Rough % of net income to save
£17,500 £1,767.05 £2,650.57 15 %
£20,000 £2,523.30 £3,784.95 19 %
£22,500 £3,279.55 £4,919.32 22

Example: Hugh
Hugh began trading as an electrician in April 2022. He estimates that in the 2022/23 tax year he will invoice approximately £22,000 and expects his expenses to be around £2,500, resulting in profits of £19,500. Hugh looks at the table above and decides to put aside 19 % of his ‘ internet ’ income each time his invoices were paid, meaning at the end of the tax year, he had saved £3,705 towards his tax placard .
On competition of his accounts and tax tax return Hugh calculates his actual profits to be £19,000 rather of £19,500 and his 2022/23 tax bill looks like this :
total due by 31 January 2024 £3,183.19 .

net net income from self-employment £19,000
Less personal allowance : £ ( 12,570 )
taxable income after deducting personal allowance £6,430
tax due on £6,430 @ 20 % £1,286
class 4 NIC ( £19,000-£11,908 ) x 10.25 % £726.93
class 2 NIC ( £3.15 adam 52 weeks ) £163.80
Total tax bill for 2022/23 £2,176.73
first payment on report for 2023/24 ( excluding Class 2 NIC ) £1,006.46
Total due by 31 January 2024 (including Class 2 NIC) £3,183.19

We can see that Hugh has saved enough to pay what he needs to on 31 January 2024. He has some left over to go towards his second requital on account of £1,006.46 due on 31 July 2024 .

How do I pay the tax owed?

You will not automatically be issued with a payslip by HMRC in promote of the payment dates on 31 January and 31 July. If you do not receive a payslip you should organise payment anyhow differently you might incur a fine for late payment and not receiving a payslip from HMRC will not be accepted as a fair excuse for belated payment .
There are diverse ways to pay and these are explained on GOV.UK .

I am also employed. Can my tax be collected via my PAYE code number?

Provided the measure you owe to HMRC by 31 January following the end of the tax year is less than £3,000 it may be collected via your Pay As You Earn ( PAYE ) code in the pursue tax year. For model, amounts owed by 31 January 2023 for 2021/22 can be collected via PAYE in 2023/24 .
however, Class 2 NIC can not be ‘ coded out ’ in this way and must be paid by 31 January following the end of the year. In addition, amounts can not be coded out which would mean that more than 50 % of your employee pay up was collected for tax .
If you want to take this option, you will need to send in your tax restitution by 31 October on paper, or by 30 December if you are lodging on-line. If you have filed within these clock limits and the tax does not appear to be collected this room, you can contact HMRC to query this .

What happens if I pay my tax late?

You will be charged interest from the date the requital was due until it is paid. You may besides be liable to a penalty if your balancing requital is deep, unless you have agreed a repayment plan with HMRC before the penalty arises. Due to the coronavirus outbreak there was a change to the late-filing penalty rules for payments due by 31 January 2022 ; see our classify guidance for more details .

I am having financial difficulties and can’t pay my tax bill. What should I do?

If you can not pay the come due in wide then you should contact HMRC to discuss the possibility of setting up a clock to pay agreement angstrom soon as possible .

What is Making Tax Digital for Income Tax and how will it affect me?

HMRC ’ second ‘ Making Tax Digital ’ program is being phased in over a number of years, following the announcement in 2015 that it was the government ’ s intention to finally abolish the Self Assessment tax return .
Making Tax Digital for VAT was the beginning element of the program to be rolled out in April 2019. Most vat register businesses already come within the fresh regimen, but all VAT registered businesses will be required to comply with the Making Tax Digital for VAT rules from April 2022 unless nontaxable .
Making Tax Digital ( MTD ) for Income Tax is presently scheduled to become compulsory for all businesses with an annual employee turnover of £10,000 or more from April 2024, unless HMRC agree you are exempt ( see below ). Some of the more specific details of the new system are not so far finalised, however non-exempt businesses will be required to :

  1. Keep their business records in digital format. This means that most businesses will either have to use specific accounting software packages or apps or maintain spreadsheets to record their business transactions. Many software companies are still developing products to meet the MTD requirements. Products currently on the market are listed on UK. HMRC will not be providing free software, but they expect some free products to be available from third party software providers in due course.
  2. Submit quarterly updates to HMRC to declare business income and expenses for the three-month period covered by the update. The intention is for the reports to be automatically generated by the record keeping system so this should not be an onerous process.

Bridging software should besides be available in due course which will enable those using spreadsheets for record keeping to link to HMRCs computer systems and submit the needed quarterly update data.

  1. Submit an ‘end of year declaration’ to confirm the final taxable profit for the business, and to provide details of any other taxable income in the tax year.

It will be possible to apply for exemption from the MTD system provided you have good reason for not being able to comply with it, for case you have an treacherous broadband connection, disability prevents you from using computers, you live in a distant location with poor people broadband access, etc. The action for claiming exemption has not so far been confirmed by HMRC. We will update this page once more information becomes available .
If you will need some aid to be able to meet the MTD rules, HMRC will be offering support and aid, however it is not however clear how this will be provided. We will update this page arsenic soon as more information becomes available .
Digital tax accounts for both individuals ( personal Tax Account ) and those in commercial enterprise ( Business Tax Account ) are besides now available to most people and these allow you to interact digitally with HMRC in connection with tax matters, and other matters such as National Insurance contributions records, state pension entitlement, etc .

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