for the self employed If you work for yourself then you are self-employed.
If you are self-employed then you have to pay Income
Tax and National Insurance.
The type of National Insurance that you pay is
different to someone who is employed.
Keeping simple books If the turnover of your business is less than £15,000
then you do not need to produce detailed accounts for tax (the
turnover is the amount you take in from customers).
You will need to provide details of your
Total business purchases and expenses
Keeping records in a book is a great help.
You will need records to claim benefits and to work out your tax
and National Insurance. If your turnover is less than £15,000
a simple record like the one below will be all you’ll need.
Otherwise you should buy a purpose-made accounts ledger. They
are on sale in most stationery shops.
Use a different column for:
Money coming in
Under Notes write;
what the money was made from or
who paid or received it
if a cheque was written, the cheque
Keep everything separate.
At the end of each month add up the amounts.
If your business has a high turnover you
should think about using an accountant. You may also have to pay
Putting money aside As a self-employed person you have to pay tax and National
Insurance as well as any running costs. Put aside a proportion
of everything you earn so you can pay your tax when it is due.
Paying tax You will have to pay tax on the profit that you make.
To work out the profit you will need the total
turnover (total amount received from customers) and the total allowed
Contact your local tax office for a list of
the expenses that are allowed.
Profit = Turnover – Expenses
To work out your tax
Work out your profit
for the year (takings less expenses)
Deduct your personal
allowance (contact your tax office if you
don’t know this)
Then find 20% of
the rest (as long as your income is below £37,400
above your allowance)
Paying National Insurance As a self-employed person
you should pay class 2 and class 4
National Insurance Contributions. If
your earnings are below £5,075
a year you can apply for a certificate
of exemption. This means you don’t
have to pay National Insurance.
Above that amount
you should pay £2.40 a week for
class 2 contributions.
52 x 2.40 = £124.80 per year.
You should pay
class 4 contributions equal to 8% of
profits between £5,715 and £43,875.
For Example: Profit £17,586
Take away threshold amount
£17,586 – £5,715 =
8% of £11,871
In this example
you should pay £949.68 a
year for class 4 National Insurance
You pay £124.80
Class 2 contributions. (52 weeks
£2.40 = £124.80)
The total amount
you pay for National Insurance is £949.68
+ £124.80 = £1,074.48
Activity - finding 8% To find a percentage if you
don’t have a calculator click
Activity: Find out how much class 4
National Insurance the following self-employed
people should pay.