Calculating Tax Returns For The Self Emplyed

Understanding Self Employment

Calculating tax returns can be complex for the self-employed. When self-employed, there are many aspects of your financial department that you need to stay on top of. At the top of the list is working out how much tax you are liable to pay each tax year. It is essential to ensure that you understand this process and what is required to determine your tax liability. Under-payment of tax could result in having to pay penalty fees, which is something we would certainly rather avoid! First and foremost, you will need to determine your employment status. Are you employed or self-employed; perhaps you are operating as a contractor or a sole trader?

While this question often has a straightforward answer, you could find yourself employed in one job, but self-employed in another. The HM Revenue & Customs (HMRC) website has a tool called the Employment Status Indicator that can help you with the determination. Through the sets of questions answered, you may find the correct determination. This is only an indicator and if you still have doubts, it is best to seek a professional opinion.

Complying With Registration Deadlines

If you have recently determined that you are self employed, or have just launched your own business, it is important to disclose this to the HMRC as soon as possible. The current deadline for registering as self employed is the 5th of October of the first year in which you will be taxed. The tax year runs from 6 April – 5 April of the next year. If, for example, you become self employed on the 20 June 2021, you will need to register before 5 October 2021. Should you register too late, you could be liable to pay a penalty fee.

After the registration process is completed and the tax year is coming to a close, you can focus on determining the amount of tax you need to pay. It is important to stay up to date with any amendments to the threshold amounts, which are announced in the Budget. Please also read our article New Income Tax Calculations 2021/2022.

Calculating Self Employed Tax Liabilities

As a self employed individual, you are liable for the same amount of personal allowance as an employed person. The standard personal allowance was increased to an amount of £12.570 for the 2021/22 tax year. The personal allowance is essentially below the first tax band, so amounts earned below this figure are not liable for tax. If you perhaps have two jobs, one being self employed, the personal allowance is applied only to one job. The HMRC will allocate the personal allowance to the job it considers to be your main employment. Generally speaking, it is likely that the personal allowance is applied to the higher paying job.


A good indication of which job is your main job is looking at the tax code. Your main job should have code 1257L for the 2021/22 tax year. Your secondary job will have the tax code BR, D0 or D1.

Calculating Income Tax for The Self Employed

It is important to note that when you pay tax as self-employed, you will pay tax on your total profits and not on the total income. Once your business expenses have been deducted from your income, you will be left with the profits that you need to pay tax on. Your profits are then calculated using the same tax bands that employed persons use. The band will only apply to the amount over one band and not in its entirety. This can be confusing, however, using the tax services of professional accountants will assist you with ensuring that your submissions are compliant. Additionally, you need to ensure that you are making the correct National Insurance Contributions.

If you are in need of an experienced accountant to help you with calculating tax returns for the self-employed, Spartan Accounting Group is your answer. We are leading small business accountants offering a comprehensive range of fixed-fee accounting services. As trusted accountants in London, we are here to assist you with our vast knowledge and experience. Get in touch with us today for the best possible help with calculating tax returns for the self-employed.

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