It is self-assessment tax return season - a time when freelancers, side hustlers and self-employed individuals are busy calculating their earnings, expenses and student loan repayments.

Being self-employed comes with many benefits - you get to be your own boss and have the potential to earn extra cash alongside your full-time job. But filing your own taxes can be tricky, to say the least.

That is why, we put together this quick and easy guide to help you manage your tax obligations when you are self-employed. You can navigate the process smoothly with the right knowledge and strategies. In this blog post, we will explore seven essential tips to help you pay income tax and national insurance when you are self-employed.

1. Understand Your Tax Year and Deadlines

The tax year for self-employed people in the UK runs from April 6th to April 5th of the following year. Being aware of these dates and the associated deadlines for filing your self-assessment tax return is crucial. Failure to meet the tax reporting deadline can result in penalties and interest on your tax bill.

2. Keep Accurate Records of Income and Expenses

Maintaining detailed records of your self-employed income and business expenses is vital. This information will be used to calculate your taxable income accurately.

To do this, you will need to start educating yourself on personal finance and all things tax. For example, you should learn the difference between income tax and national insurance payments.

If you are struggling to get everything in order, get help from accounting software or hire an accountant to help you out. Filing your taxes is difficult – it is okay to need some help from time to time.

3. Know Your Taxable Income

Your taxable income is the amount on which you need to pay national insurance contributions and income tax. It is calculated by subtracting allowable business expenses from your total income. Make sure to claim all eligible deductions to reduce your tax liability legally.

4. Determine Your Personal Allowance

The tax-free personal allowance is the amount you can earn before paying income tax. The personal allowance for the 2023/2024 tax year is £12,570. If your total income exceeds this threshold, you will be liable to pay income tax on the amount that exceeds it. This should help you estimate how much tax you will need to pay at the end of the tax year.

5. Paying Income Tax and National Insurance Contributions

You will need to pay income tax and national insurance contributions on your self-employed income. These payments are usually made through the self-assessment tax return system. Make sure to set aside funds throughout the year to cover your tax bill, as you may need to make payments on account if your tax liability exceeds £1,000.

6. Consider Paying Corporation Tax (if applicable)

If you operate as a limited company, you will need to pay corporation tax on your business profits. Ensure that your business accounts are separate from your personal finances, and remember to pay corporation tax on time to avoid penalties.

7. File Your Online Self Assessment Tax Returns

HM Revenue and Customs (HMRC) encourages self-employed individuals to file their tax returns online. It is a convenient and efficient way to submit your self-assessment tax return, and it helps you avoid common errors associated with paper returns. Complete and submit your online tax return by the deadline to avoid penalties.

Remember, plan ahead for your taxes

Paying taxes when self-employed requires careful planning, record-keeping and adherence to deadlines. By understanding your tax obligations, keeping accurate financial records and taking advantage of allowable deductions, you can minimise your tax bill while staying compliant with tax and national insurance regulations.

Remember that seeking professional advice, such as consulting with an accountant, can provide valuable guidance in managing your self-employed income and taxes. By following these tips and staying proactive in your tax management, you can ensure a smoother tax experience and focus on growing your self-employed business.