Easily calculate how much Income Tax and National Insurance you owe on your earnings if you’re self-employed.
It is important to know whether you are self-employed or employed as it affects how you pay tax. 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. If you’re self-employed, the system is different. You don’t have an employer to deduct the taxes you owe automatically so you have to sort it out yourself. You declare your untaxed income and pay tax via a tax return.
If you are employed and have freelance commitments on the side, or even your own side business, you are seen as being both employed and self-employed. So you’re taxed both automatically through PAYE and manually via a tax return.
Your income tax is based on your total income. If you have a side income, it’s everything from your employer plus your profit from your side income. While your employment income is taxed monthly through PAYE, your side income is taxed when you submit your tax return.
Consider someone earning £15,000 from employment and £5,000 from their side income: The income tax bands for 2022 to 2023 are:
You will also pay National Insurance Contributions (NICs) if you earn over a certain amount on Etsy. Depending on your profit, you might need to pay Class 2 and Class 4 National Insurance.
For Class 2, your tax is based on the number of weeks you’ve worked on your business.
Class 4 is calculated in the same way as income tax. You pay the following on your profits:
Do keep in mind that the below numbers are based on the 2022/2023 tax year.
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