Tax

Tax and self-employment | Savvy Mums Business

Wondering what will happen to paying tax if you become self-employed?

It’s likely that at some point before self-employment, you were employed. This meant your employer deducted your income tax and National Insurance from your wages if you earned above a certain level. Easy.

When you are registered as self-employed, income tax is calculated from a yearly Self Assessment (a tax return) and you then pay any tax due directly to HMRC.

You still get the same tax allowance as if you were employed and you only pay tax on your profits, not on all your earnings through self-employment as some of this will be offset against allowable expenses.

If you decide to operate your business as a limited company, that changes the legal structure of the business and you will go from being a sole trader to being both a director and employee of your business. You’ll follow different rules on tax and National Insurance and should contact either HMRC or an accountant for help and advice if you’re not sure what to do.