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Self Employment - National Insurance and Tax

Possible Tax Deductions for Self Employed

Dec 25, 2008 Asa Ghaffar

Self employment brings responsibility for national insurance and tax payments. It allows freelancers to write off mortgage payments and council tax against taxation.

The salary of the self-employed or freelancer will not have been subject to tax and national insurance at source. Self employment places a discipline on freelancers in terms of registering for and calculating tax deductions.

After Registering as Self-Employed, How Do Tax and Class 2 National Insurance Work?

The tax rates for the self-employed are exactly the same as for those who work for an employer. The main benefit of being self-employed is that it is possible to write off expenses and lower the amount of taxation paid.

National insurance payments are completely different for the self-employed and freelancers. The self-employed pay class 2 national insurance contributions and class 4 if profits are high enough. The HM Revenues and Customs site provides a full breakdown of applicable rates.

Tax Deductions for Self-Employed

It is normally possible to make tax deductions for self-employed when the expense incurred is due to the occupation. The most popular deductions from self-employed pay includes:

Cost of stock;
Payroll costs;
Premises costs;
Repairs;
Motor and travel expenses;
Finance costs;
Administration costs;
Professional fees.

Angela Beech, a partner at the accountancy firm Blick Rothenburg, said "The new guidance by HMRC had also usefully clarified the amounts that people can claim as expenses – not just for mortgage interest, but for other expenses such as heating and electricity."

How Tax and National Insurance Payments for the Self-Employed Can be Made

It is necessary to complete a self assessment form either online or on paper. If submitted on paper, the form needs to be completed by the 31st October. However, if completed online they can be submitted on or before the 31st January the following year.

A dedicated support line has been set up to help the self-employed. By calling 0845 900 0444, it is possible to get assistance 7 days a week until 8pm in the evening. Sending the forms back late incurs a fine of £100. It is best to send tax returns by recorded delivery in case they're lost in the post.

It is imperative that the freelancer visits their local tax office to register as self-employed. Keep receipts for any expenses incurred as proof when claiming any tax deductibles. Prepare in advance and always submit forms prior to deadlines to avoid the imposition of further fines.

Those who found this article of interest may also be interested in reading about ways to make additional income on the Internet. Other possible areas of interest include Eliminating Credit Card Debt and Saving Money on Living Expenses.

The copyright of the article Self Employment - National Insurance and Tax in Self-Employment is owned by Asa Ghaffar. Permission to republish Self Employment - National Insurance and Tax in print or online must be granted by the author in writing.