Print

How are you taxed and what are the special rules for certain types of workers? 

When you are self-employed you have to account for, and pay, your own tax and National Insurance Contributions (NICs) to HM Revenue & Customs (HMRC).

There are different ways of accounting and claiming your expenses.

Worked example

In the tax year 6 April 2021 to 5 April 2022, he earns £25,000 per year from session work, gigging and busking.

He claims tax relief on his business costs of £5,000 which are incurred on:

He has also bought a new laptop and a van for his work this year. These cost him £3,500.

His total costs are £8,500 (£5,000 + 3,500), making his profit for the year £16,500.

His accounts for the year ending 5 April 2022 are as follows:

Account name

£

Sales

25,000

Expenses:

 

Direct costs (stage costumes)

800

Use of home

550

Office costs (telephone)

400

Motor and travel

2,500

Subsistence

500

Accommodation

100

Repairs & renewals

150

Total expenses

(5,000)

 

 

Net profit (sales - expenses)

20,000

 

 

Less capital equipment costs

(3,500)

   
Profit for tax 16,500

 

Other income for 2021-22

Notification of liability

Tax and tax return

Tax calculation

His tax is calculated according to the return entries as follows:

2021-22 tax year

£

£

Tax due

Employment income

 

1,500

 

 

 

 

 

Self-employed income

20,000

 

 

Less: capital expenses

(3,500)

 

 

Taxable profit

 

16,500

 

 

 

 

 

Interest

25

 

 

Less: savings allowance

(25)

 

 

Taxable savings income

 

0

 

 

 

 

 

Dividend

250

 

 

Less: dividend allowance

(250)

 

 

Taxable dividend income

 

0

 

Total income

 

18,000

 

Less: Personal allowance

 

(12,570)

 

Taxable income

 

5,430

 

Tax @ 20%

 

1,086

 

Less: tax deducted at source

 

(300)

 

Tax due

 

 

786

 

 

 

 

National insurance

 

 

 

Profit

16,500

 

 

Lower limit

9,568

 

 

Profits for NI

6,932

 

 

Class 4 NI @ 9%

 

 

624

Class 2 NICs (flat-rate £3.05 p.w.)

 

 

159

NICs due

 

 

783

 

 

 

 

Total tax & NI payable

 

 

1,569

 

He will then pay tax as follows:

Date

Detail

Tax

31/1/2023

Final payment for 2021-22

1,569

 

1st Payment on account for 2022-23*

705

 

 

 

31/7/2023

2nd Payment on account for 2022-23*

705

 

 

 

31/1/2024

Tax liability for 2022-23

  ?

 

Less: Payments on account already made**

(1,410)

 

Final payment for 2022-23

  ?

 

1st Payment on account of 2023-24 

  ?

 

 

 

 Notes

*

**

We don't know what James' tax bill is for 2022-23 so this is added when he files his next tax return. 

It is possible that his income for 2022-23 will be lower than 2021-22. If so, he can ask HMRC to reduce his payments on account for 2022-23.

Next guide in this series

Agency or Umbrellas
How to check whether your agency is putting you into an illegal tax avoidance scheme.


Squirrel ad


Are you enjoying our content? 

Thousands of accountants and advisers and their clients use www.rossmartin.co.uk as their primary TAX resource.

Register with us now to receive our unique FREE Tax Planning Tips and Advice Guide & our FREE OMB Newsletter.