Slightly confused about tax due - went self-employed part way through 21-22 tax year

SensibleSarah

I went freelance (sole trader) in July 2021, after leaving my employed role - so obviously had some earnings from employment April-July which I was taxed for via PAYE as usual. I'm currently trying to do the sums to make sure I've left enough in my sole trader bank account to pay my tax, NI and student loan when I file my first self-assessement, which I plan to do as soon as I can after this tax year ends to get it out of the way and so I can more clearly see where I stand.

My issue is that I can't find an online calculator that will take into account the amount I'd already earned and the tax paid on it when I was employed (i.e. the part of my personal allowance that I'd already used when I left that role) as well as my self-employed income. I don't have an accountant - my freelance business is really simple and I don't think I need one at this point, especially as this is the only thing I can't find a straightforward answer for online.

The rough figures on my p45 show that my total pay was just over £8,500 by my employer (April - July 2021) and I paid just over £870 in tax on this, so am I right in thinking that if I just add my earnings from employment and self employment profit together into a tax calculator, then I can subtract the £870 I've already paid off the tax total that it spits out and that will give me roughly what I will still owe for the year? And HMRC will automatically calculate this when I submit my self assessment? 

I've been setting aside at least a third of every invoice paid to cover tax, NI and student loan before paying myself a salary, so should have plenty in the pot, but this little bit of ambiguity is making me anxious. 

Can anyone help clear this up? Thanks in advance! 

LessImpecunious

Don't have an answer to this, but bear in mind that you'll only pay tax at all for that year on the portion of your total earnings which exceeds the annual tax allowance of £12,500ish. (Total earnings would include your employed pay and any bank savings interest, while for self-employment it will mean any profit left after all allowable costs and expenses have been taken off). If the total tax you owe on any amount over the tax allowance is less than the £870 you've already paid you may be due a refund...

Jeremy535897

I'm not sure that there is a tax calculator that copes with all those factors. Assuming that you live in England, you have a personal tax allowance of £12,570, and can earn another £37,700 before paying tax at 40%. So if your income for 2021/22 is £50,270 or less, your highest rate of income tax is 20%.

If your self employed profit will exceed £6,515, you will have to pay £3.05 a week class 2 NIC (collected by self assessment). If your self employed income exceeds £9,568, you will pay 9% class 4 NIC on your profits above £9,568 (again collected by self assessment).

As an example, if you expect your self employed profits to be £25,000, and your only other income or gains were your employment income of £8,570, you would pay income tax of £25,000 + £8,570 = £33,570 less £12,570 personal allowance = £21,000 at 20 % = £4,200, less £870 already paid = £3,330. You would add £3.05 x 33 weeks (depending on the date you started self employment) = £118.95, and class 4 NIC of £25,000 - £9,568 = £15,432 x 9% = £1,388.88.

What you additionally have to repay on your student loan will depend upon which plan you are on. Assuming it is Plan 2, you repay 9% on income exceeding £27,295. In my example, you would pay £33,570 - £27,295 = £564.75.

So on self employed income of £25,000, you would pay tax of £3,330 plus student loan repayment £564.75 plus class 4 NIC of £1,388.88 plus Class 2 NIC of £118.95, giving a total of £5,402.58.

Perhaps someone else can check these figures, as I don't normally do income tax calculations.

SensibleSarah

Thanks LessImpecunious!
Yep, all the online tax calculators etc seem to assume that I haven't used any of my tax allowance yet, so it's been tricky to get accurate figures and I'm just having to make educated guesses - maths was never a real strength of mine but I do have spreadsheets coming out of my ears to track everything. My allowable costs and expenses for my business are tiny to be honest, and I bring in a decent amount of income for what I do - so I'll definitely not be getting a refund on any tax already paid, but being able to take that £870 off what the calculators are telling me that I'll owe is definitely a bonus! 

SensibleSarah

Jeremy535897 said:

I'm not sure that there is a tax calculator that copes with all those factors. Assuming that you live in England, you have a personal tax allowance of £12,570, and can earn another £37,700 before paying tax at 40%. So if your income for 2021/22 is £50,270 or less, your highest rate of income tax is 20%.

If your self employed profit will exceed £6,515, you will have to pay £3.05 a week class 2 NIC (collected by self assessment). If your self employed income exceeds £9,568, you will pay 9% class 4 NIC on your profits above £9,568 (again collected by self assessment).

As an example, if you expect your self employed profits to be £25,000, and your only other income or gains were your employment income of £8,570, you would pay income tax of £25,000 + £8,570 = £33,570 less £12,570 personal allowance = £21,000 at 20 % = £4,200, less £870 already paid = £3,330. You would add £3.05 x 33 weeks (depending on the date you started self employment) = £118.95, and class 4 NIC of £25,000 - £9,568 = £15,432 x 9% = £1,388.88.

What you additionally have to repay on your student loan will depend upon which plan you are on. Assuming it is Plan 2, you repay 9% on income exceeding £27,295. In my example, you would pay £33,570 - £27,295 = £564.75.

So on self employed income of £25,000, you would pay tax of £3,330 plus student loan repayment £564.75 plus class 4 NIC of £1,388.88 plus Class 2 NIC of £118.95, giving a total of £5,402.58.

Perhaps someone else can check these figures, as I don't normally do income tax calculations.

Thanks Jeremy - that's really helpful. 
Yes, I'm in England and I'm on Plan 1 student loan repayment - actually not that much still to repay now but obviously payments have been paused since leaving employment. 
Your figures pretty much tally with what I've estimated - so that definitely puts my mind at rest a bit! 

Jeremy535897

Plan 1 means the student loan is repaid when income hits £19,895, so in my example above replace £564.75 with £1,230.75.

Dazed_and_C0nfused

And HMRC will automatically calculate this when I submit my self assessment? 

Assuming you remember to include the employment income (and tax deducted) when completing your return then yes, it will be taken into account.

TonyTeacake

If you don't want to pay a book keeper/accountant maybe call the tax office preferably early one morning so you can get through. I'm sure if you have all your figures to hand they will assist you.

Dazed_and_C0nfused

I don't think the op's question is something HMRC would actually help with.

After 5 April the op will be able to start completing their 2021:22 Self Assessment return online (on gov.uk) and be able to use that to get a calculation ahead of actually submitting the return.

SensibleSarah

Dazed_and_C0nfused said:

I don't think the op's question is something HMRC would actually help with.

After 5 April the op will be able to start completing their 2021:22 Self Assessment return online (on gov.uk) and be able to use that to get a calculation ahead of actually submitting the return.

Thanks! 
That's the plan, to start self assessment on about 6th April 😁. 
I have done self assessment in the past, years ago, but can't remember too much about the process to be honest. My worry is that HMRC will conveniently forget about the tax I've already paid in this tax year but if there's a box for me to remind them about it, I definitely will! 

Dazed_and_C0nfused

SensibleSarah said:

Dazed_and_C0nfused said:

I don't think the op's question is something HMRC would actually help with.

After 5 April the op will be able to start completing their 2021:22 Self Assessment return online (on gov.uk) and be able to use that to get a calculation ahead of actually submitting the return.

Thanks! 
That's the plan, to start self assessment on about 6th April 😁. 
I have done self assessment in the past, years ago, but can't remember too much about the process to be honest. My worry is that HMRC will conveniently forget about the tax I've already paid in this tax year but if there's a box for me to remind them about it, I definitely will! 

I think you have forgotten what the "Self" in Self Assessment refers to.

It's not self employment, it's that you are completing the return yourself.

It's up to you to include all your taxable income and any tax deducted.  If you do that then it will be reflected in the Self Assessment tax calculation.