Self-Employed: How Much Do I Need to Earn to Pay Tax?

As soon as you register as self-employed, HMRC will send you a Unique Taxpayer Reference (UTR) number by post. On top of this, they’ll set up an online HMRC account for you, and send you instructions on how to access it.

This means that you’ll have to submit a self-assessment tax return by 31 January each year. But how much do you have to earn from your self-employed work before you pay tax?

How much do you have to earn from your self-employed work before you pay tax?

How Much Do I Need to Earn While Self-Employed to Pay Tax?

If you’re new to self-employed work, the first thing you need to know is that you must submit a tax return each year, no matter how much money you’ve made unless it is under £1000 which would mean it falls under the trading income allowance.

The good news is that, when it comes to income tax, self-employed people face exactly the same rates as employees and other workers. And the amount you pay all depends on how much you’ve earned in a year.

How Much Tax Do I Owe If I Earn Under £10,000 a Year?

The UK tax rates tend to change every year. For the 2021-2022 tax year, you don’t have to pay any tax on the first £12,570 you earn. So if you earn under £10,000 in a year, you won’t owe any tax. However, you must still submit a self-assessment tax return.

Because if you don’t, how else will the government know that you don’t owe them any tax?

For any amount you earn above £12,570, the 2021-2022 tax rate is as follows:

  • 20% on income between £12,571 and £50,270
  • 40% on income between £50,271 and £150,000
  • 45% on any income over £150,000

On top of all this, if you earn over £85,000 in a year, you have to register for VAT. You can read our complete guide to VAT for self-employed freelancers and contractors here.

Don’t Miss the Tax Return Deadline!

You can submit your tax return either by paper, or online.

For the 2021-2022 tax year:

  • If you want to submit a paper tax return, you have until midnight on 31 October 2021 to do so.
  • If you want to submit your tax return online, the deadline is midnight on 31 January 2022.

There’s a minimum penalty of £100 for late tax returns. And the longer you leave it, the larger the penalty gets. You may also get charged interest on your late payments, which means your tax bill could cost you a lot more than you expected.

Submitting a tax return can be daunting if you’ve never done it before. But HMRC designed the process to be as straightforward as possible, and you may be surprised at how simple you find it.

How to Manage Tax Returns for the First Time

You’ll find a lot of guides on our site to help you understand your tax responsibilities as a self-employed contractor or freelancer:

  • Going Self-Employed for the First Time – A short yet detailed guide to the many things you’ll have to consider as a newly self-employed person, from your pension plan to your first tax return. Read our guide to going self-employed for the first time.
  • Allowable Expenses for Self-Employed Workers – You only have to pay taxes on your profits. This basically means that you’re allowed to subtract certain expenses from your tax return, which of course can significantly reduce your ultimate tax bill. You can read our guide to allowable expenses for self-employed workers.
  • Tax Records – What records should you keep, and how long should you keep them? Read our full guide to keeping tax records.
  • HMRC and Self-Employed Workers – Sometimes HMRC investigates small businesses and self-employed workers. Hopefully this is not something you’ll ever have to worry about. But it’s worth knowing the sort of things that might trigger an investigation, so that you’ll know how to avoid one of your own. Read our guide to HMRC investigations.

Insurance can provide essential protection against many of the problems that self-employed workers face, from unpaid invoices to tax disputes. At Tapoly, we specialise in affordable insurance for self-employed freelancers and contractors, with cover starting from just 35p a day.

If you have any questions, or you’d like to discuss your options, you can contact the Tapoly team at info@tapoly.com, call our info line on +44(0)207 846 0180, or use the chat box on our website.

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