Employed vs Self-Employed: What's the difference?
Leaving a regular job to work for yourself can feel freeing, but it also means your personal finances change right away. As an employee, your company handles your taxes through PAYE, so Income Tax and National Insurance are taken out before you get paid.
When you are self-employed, you do not get automatic monthly payroll deductions. You have to keep track of your own income. Depending on how much you earn, you must report your earnings to HMRC either with quarterly digital updates under Making Tax Digital or with the usual annual Self Assessment tax return.
You will still pay UK Income Tax as usual, but your National Insurance changes to Class 4 NICs. These are now charged at 6% on profits between £12,570 and £50,270. To manage this change well, start keeping careful records from the beginning. This helps you separate your personal spending money from the tax you owe.
Starting your own business for the first time? Don’t try to figure out your new tax rules alone. Book a free 15-minute Startup Discovery Call with our team to learn about our fixed-fee sole trader setup packages.
