Self-Employed Tax Calculator

Self-Employed Tax vs PAYE

When you are employed, your employer deducts Income Tax and National Insurance (NI) before you receive your pay. As a self-employed sole trader, there is no automatic deduction. You are responsible for calculating and paying your own tax through Self Assessment. The key differences are:

• You pay Class 2 and Class 4 NI instead of the employee Class 1 NI contributions your employer would normally deduct. Class 2 and 4 rates are generally lower than Class 1.
• Your employer would normally pay employer NI on top of your salary, but this does not apply when you are self-employed.
• Tax is paid in arrears through Self Assessment, not in real time via payroll.

Payment on Account

HMRC uses a system called Payment on Account to collect tax in advance for the following year. If your Self Assessment tax bill is over £1,000, you will usually need to make two advance payments towards the next year's bill:

• 31 January: first payment on account (50% of previous year's bill) plus any balance owed for the previous tax year
• 31 July: second payment on account (another 50% of previous year's bill)

In your first year of self-employment you will pay your full tax bill on 31 January plus the first payment on account, so set aside enough funds to cover 150% of your estimated first year's tax.

Allowable Business Expenses

You can deduct allowable expenses from your income to reduce your taxable profit. Common examples for sole traders include:

• Office costs (stationery, computer equipment, software)
• Travel costs (fuel, parking, train fares, but not commuting to a fixed workplace)
• Home working costs (a proportion of heating, electricity, broadband)
• Professional fees (accountant, solicitor, professional memberships)
• Marketing and advertising
• Stock, raw materials and tools
• Business insurance and bank charges

Personal expenses cannot be deducted. If an item is used partly for business and partly personally (for example a phone), you can only deduct the business proportion.

Self Assessment Deadlines

• 5 October: register for Self Assessment if self-employed for the first time
• 31 October: deadline for filing a paper Self Assessment tax return
• 31 January: deadline for filing an online Self Assessment return and paying any tax owed, plus first payment on account
• 31 July: deadline for second payment on account

Missing the 31 January deadline results in an automatic £100 penalty, with further penalties for continued non-filing.