If you are self-employed, you will need to pay taxes on your business income. In the UK, self-employed individuals are required to complete a self-assessment tax return each year to declare their income and expenses and calculate their tax liability.
The main taxes that self-employed individuals need to be aware of in the UK are:
Income tax: Self-employed individuals are required to pay income tax on their profits, which is calculated as a percentage of their total income after allowable expenses have been deducted. The tax rates and allowances can vary each year and are set by the government.
National Insurance contributions: Self-employed individuals are also required to pay Class 2 and Class 4 National Insurance contributions (NICs) on their profits. Class 2 NICs are a fixed weekly amount, while Class 4 NICs are calculated as a percentage of profits over a certain threshold.
VAT: If your business turnover exceeds a certain threshold (currently £85,000), you may be required to register for Value Added Tax (VAT) and charge VAT on your goods or services. You can also reclaim VAT paid on business expenses.
It's important to keep accurate records of all income and expenses to ensure that you pay the correct amount of tax and National Insurance contributions. Additionally, self-employed individuals may be eligible for certain tax reliefs and allowances, such as the Annual Investment Allowance and the Self-Employment Income Support Scheme