How is tax calculated for self employed

When it comes to tax, your employment status is important. When you’re employed i.e. you work for a company on a permanent basis, you’re taxed on a system known as Pay As You Earn (PAYE). This means that the Income Tax and National Insurance you owe is deducted from your wages by your employer before you’re paid. When you’re self-employed, the system is different. You don’t have an employer to deduct the taxes you owe automatically so the onus is on you to sort it yourself. You declare your untaxed income and pay tax via a tax return. 

But where does that leave those who are employed and have freelance commitments on the side, or even their own side business? Through the eyes of HMRC, these people are seen as being both employed and self-employed. Put simply, you’re taxed both automatically, and manually via a tax return. 

Do I pay more tax if I have a side hustle?

Not exactly. Take a look at our blog about the tax implications of side hustles to learn more about it. 

Essentially, having a side hustle won’t affect the way you’re taxed as such. You won’t be taxed at a higher rate. Similar to earning money from rental income outside your employment, all of your earnings are added together at the end of the tax year. You’re taxed at a rate that’s based on the total amount. Take a look at the current tax rates below:

How to use the employed and self-employed tax calculator

It couldn’t be more simple. Just input your gross salary (what you’re paid before tax is deducted) and the money you make from your side hustle. Anything that you’ve spent on your business, for example buying a table to use as a stall at a market, you deduct from your overall earnings. This means you’re only taxed on your profits. These spends are known as expenses. Add any expenses to the box, “Self-employment expenses”.

Be aware that if your expenses are less than £1,000 in the tax year, we’ll automatically deduct the Trading Allowance instead in your calculations. This is an allowance that means the first £1,000 of your self-employed income is tax-free. Check out the articles below to read more about the trading allowance.

Still got questions?

Calculating your tax is one thing, but there’s nothing like speaking to a real, human expert, right? That’s why we offer one-off, personal tax advice from an accredited accountant. Just £119 per consultation. Learn more.

If you are self employed, use this simplified Self Employed Tax Calculator to work out your tax and National Insurance liability. The calculator uses tax information from the tax year 2022 / 2023 to show you take-home pay. More information about the calculations performed is available on the details page.



YearlyMonthlyWeeklyDailySelf-EmploymentProfit£ 0.00£ 0.00£ 0.00£ 0.00Taxable income£ 0.00£ 0.00£ 0.00£ 0.00Total Tax£ 0.00£ 0.00£ 0.00£ 0.00Class 2 NICs£ 0.00£ 0.00£ 0.00£ 0.00Class 4 NICs£ 0.00£ 0.00£ 0.00£ 0.00Student Loan£ 0.00£ 0.00£ 0.00£ 0.00Take Home£ 0.00£ 0.00£ 0.00£ 0.00

Daily results based on a 5-day week

Use the options to the right to change the time periods displayed, or the tax year that should be used for calculations.

Amount owed to HMRC: £0.00. Payment on account for 2023/24: £0.00.

Total Self Assessment due by 31st January 2024: £0.00.

A further payment on account due by 31st July 2024: £0.00.

This does not include any payments on account you may already have made for the 2022/23 tax year.

What does this mean?

The calculator needs some information from you before working out your tax and National Insurance. Firstly, enter your annual income and outgoings from self-employment. Your tax code, age, and other options might also affect your calculations.

If you are self-employed you will have to tell HMRC about your self-employment income, so that your tax, National Insurance and student loan repayments (if applicable) can be calculated. Using the details provided above, the calculator will try to work out the amount that HMRC will ask you to pay.

If your self-employment income is below the small earnings limit (£11,908 for 2022 / 23) you can apply to HMRC to defer your Class 2 National Insurance contributions - tick this option if this applies to you. You might choose to pay these contributions anyway, to make sure that you are entitled to the benefits of National Insurance, such as the State Pension. More information available from HMRC - Class 2 National Insurance exceptions.

Self-employed people are responsible for paying the same federal income taxes as everyone else. The difference is that they don't have an employer to withhold money from their paycheck and send it to the IRS—or to share the burden of paying Social Security and Medicare taxes. Self-employed people must keep track of their own income, estimate how much tax they owe, and in most cases, makes estimated tax payments throughout the year.

Calculating self-employment income

When you work for someone else, you get a W-2 form from your employer at the end of the year telling you exactly how much money you made. When you're self-employed, you have to figure that out yourself. That means you must keep accurate records of how much money you earn for the work you do and how much you spend to operate your business.

This record keeping is solely your responsibility—after all, you're the boss. At tax time, use Schedule C to report your business income and expenses. Subtract the expenses from the income to get your net profit from self-employment. Your net profit is then included on your personal income tax return and taxed in the same way as your other income. If you do work as an independent contractor, you can expect to receive 1099 forms from your clients, reporting the amounts they paid you during the year.

Self-employment taxes

In addition to income taxes, everyone must pay Social Security and Medicare taxes. If you are self-employed you need to make these tax payments yourself since you don’t have an employer to send it in for you. For 2022, employees pay 7.65 percent of their income in Social Security and Medicare taxes with their employers making an additional payment of 7.65 percent. The Social Security portion of the tax is paid on the first $147,000 of employment income in 2022.

Unfortunately, when you are self-employed you pay both portions of these taxes—for a total of 15.3 percent. However, you get to claim a deduction for a portion of this when you file your tax return. You calculate these employment taxes on a Schedule SE attachment to your personal tax return.

Estimating your income tax

When you're an employee, your employer withholds money for federal taxes out of your paychecks and sends the money to the IRS, so that by the end of the year, your anticipated tax bill should already be substantially paid. If you're self-employed, however, this is another task you have to take care of yourself.

Rather than paying weekly, you must make four estimated tax payments during the year. Because you're doing this while the tax year is in progress, all you can do is provide your best estimate based on the income you earn and recent tax rates.

Alternatives to estimated tax payments

If you have a "regular job" in addition to your self-employment, you may be able to increase your federal tax withholding at that job to cover the taxes on your self-employment income. If you can do so, you won't have to pay estimated taxes. However, if you still owe at least $1,000 even after increasing your withholding, then you must make some estimated tax payments. By year's end, your estimated payments (including employer withholding) must equal at least 90 percent of your tax liability for the current year or 100 percent of your tax liability from last year. If it doesn’t, you may be subject to an estimated tax penalty.

With TurboTax Live Full Service Self-Employed, work with a tax expert who understands independent contractors and freelancers. Your tax expert will do your taxes for you and search 500 deductions and credits so you don’t miss a thing. Backed by our Full Service Guarantee. You can also file your self-employed taxes on your own with TurboTax Self-Employed. We’ll find every industry-specific deduction you qualify for and get you every dollar you deserve.

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