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Income tax is the tax which is paid on taxable income. Not all types of income are taxable and only the taxable income which is received above a specified level is taxed. There are tax reliefs and allowances which may reduce the amount of taxable income that you receive, resulting in a lower tax bill, or maybe no tax to pay at all.

Earnings from self employment are taxable income, in addition to pensions, savings interest, dividends, rental income and trust income. Everyone receives a ‘Personal Allowance’ which is an amount of income that won’t be liable to income tax. For taxpayers aged 64 or below the 2011-12 amount of tax free allowance is £7475. The amount of income tax that you pay when self employed may be reduced by deducting expenses that are incurred during the running of your business. Tax reliefs may also be claimed, which further reduce your profit and therefore, your tax bill.

Each year, you will complete a Self assessment tax return and submit this to HM Revenue & Customs. The tax return includes details of all income and any allowances and deductions being claimed. After allowances, reliefs and deductions have been subtracted from your gross profit, you will be left with the net profit which will be liable to income tax. This is paid at the basic rate of 20 percent up to £35,000, 40 percent from £35,001 up to £150,000. Any income above this amount is taxed at 50 percent.

The income tax due may be collected through your tax code up to £3000, or paid directly to HMRC before 31st January.


For further information on income tax for self-employed, see our guide here.

About The Author

Lee Murphy

MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.

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