The beginner’s guide to self-employed tax rates

What is a self-employed tax overview?

A self-employed tax overview (known as SA302 by HMRC) is the overview that provides evidence of the income that you have earned through your self-employed work.

The tax overview document is useful as a reference for yourself to keep as a record of your income. It can also be used as evidence of your income if you’re applying for a mortgage.

Knowing your income is important for understanding how much tax you will need to pay under self-employed tax rates and what tax bracket(s) your income will be subject to.

How to get your self-employed tax overview

To find out your self-employed tax rate and to get your self-employed tax overview you will first need to submit a self-assessment tax return.

You can submit your tax return through HMRC’s online portal. There are also some finance software tools and apps that allow you to do this through their product…

• By the way, our partner Powered Now is one of those finance software that let you submit tax returns on their app. Join as a Checkatrade member and you can get 30% off on Powered Now!
• Here’s a little more about Powered Now if you’re interested, and join Checkatrade to get the deal.

… After submitting your self-assessment tax return you will need to wait for at least 72 hours before being able to access your self-employed tax overview.

Once you have left enough time you can then log back into your online HMRC account and access or print your self-employed tax overview document. If you’re using commercial finance software to submit your tax return, then you will need to use this software to also access your tax overview.

What are the different self-employed tax brackets?

When it comes to understanding your sole trader tax rate, there is no singular rate. The tax you pay will be broken down into different levels of tax brackets.

Here’s a breakdown for you:

• Personal allowance: This is how much you can earn before you start to pay any income tax. If you earn between £0 – £12,570 you will not pay any tax on this amount. This is also known as your tax free allowance.
• Basic rate income tax: Any income you earn between £12,571 – £50,270 will be taxed at a rate of 20%.
• Higher rate income tax: As your business grows, if you earn £50,271 – £150,000 any income within this range will be taxed at a rate of 40%.
• Additional rate income tax: This is the highest rate of tax you could expect to pay. Any income you earn over £150,000 will be taxed at a rate of 45%.

So let’s look at a practical example of how your income might fall into the various self-employed tax brackets:

If you were to earn £60,000 in the 2022/23 tax year, you’ll pay:

• 0% tax on the first £12,570
• 20% basic rate tax on any income that falls into the next tax bracket (£12,571 up to £50,270). Using our example you’d pay 20% tax on £37,700 which works out at £7,540
• 40% higher rate income tax on the remaining income (£50,271 up to £60,000), so you’d pay 40% tax on £9,730, which works out at £3,892.

So, on earning £60,000 you would pay £11,432 in tax. This might sound a lot, but there is some very good news coming up as you’re eligible for self-employed tax deductions.

Understanding self-employed tax deductions

One of the many benefits of being self-employed is the ability to claim for business-related expenses. This means you can get self-employed tax deductions.

What can be included as a business expense?

You can claim self-employed tax deductions for:

• Office costs such as stationery or phone bills
• Travel costs including fuel, parking, train or bus fares
• Clothing expenses for uniforms
• Staff costs including salaries or subcontractor costs
• Things you buy to sell on such as stock or raw materials
• Financial costs for any insurance or bank charges
• Costs of your business premises such as heating, lighting and business rates
• Any advertising or marketing including website costs
• Training courses related to your business

As you can see, the list of things that you can claim self-employed tax deductions for covers a lot of areas where you incur costs as a business. Keeping a record of your costs by processing and filing invoices and receipts is really important so you can prove what business costs you have paid.

It’s important to note that you can only claim allowable expenses for your business costs. This means that if your mobile phone bill is £60 but you spend £40 on calls and data for your business and £20 is for personal use, you can only claim tax deductions on the £40 used for your business.

Self-employed tax deductions when working from home

If you work from home all the time or have a home office, you may be able to claim a proportion of your costs for things including utility bills for heating, electricity and telephone or internet usage, as well as your council tax and mortgage interest or rent.

To be able to make a claim for these tax deductions, you need to use a method to accurately divide a proportion as a cost to your business. As an example, you could divide the amount of time you spend working from home by the number of rooms you use for your business.

Another way of claiming business expenses is using what is known as simplified expenses. These are flat rates that can be used for vehicles you use for work, when you work from home as part of your business, or when you are living on your business premises. Simplified expenses can only be used by sole traders and not limited companies.

For more information on how to use simplified expenses see the simplified expenses advice page on the Gov.UK website.

FAQ’s

What is the tax rate for self-employed?

The self-employed tax rates that you pay are split into:

• Personal allowance at 0%
• Basic rate at 20%
• Higher rate at 40%
• Additional rate at 45%

How much tax will I pay self-employed?

The amount of tax that you pay will depend on how much money you make. You will also be eligible for some self-employed tax deductions so this will be offset against your tax, meaning you will pay less tax overall.