Self-employed tax calculator — methodology

The calculation, in order

1. Start from the profit you entered: turnover less allowable expenses and capital allowances. This is an input, not a result. Nothing in this software derives it.
2. Add other taxable income. That total is the income tax base.
3. Deduct the personal allowance that applies to that total. Above £100,000 it tapers, so this step runs through the income tax engine rather than subtracting a constant.
4. Tax the remainder band by band at the schedule for the chosen region. Income tax on this kind of income is devolved to Scotland.
5. Charge Class 4 National Insurance on the profit alone, on UK-wide rates. Other income does not consume the lower profits limit and cannot push the profit past the upper one.
6. Report the Class 2 status. Nothing compulsory is added.
7. Subtract both from the income. That is what is left.

income tax base = profit + other income
taxable income  = income tax base − personal allowance(income tax base)
income tax      = schedule[region].earned applied to taxable income

class 4 base    = profit                        (never the income tax base)
class 4         = mainRate  × (min(profit, upper limit) − lower limit)
                + upperRate × max(0, profit − upper limit)

left over       = profit + other income − income tax − class 4

The Class 4 line is written out to show the shape of the charge, not because the page computes it: class4NI does, and the calculator renders the bands that function returns.

Rates, thresholds and allowances

Every Class 4 and Class 2 figure in this table is UK-wide. National Insurance is not devolved, so the only row a Scottish reader sees a different answer from is the income tax schedule.

Class 2, and the annual figure that does not exist

Class 2 stopped being a compulsory charge. At or above the small profits threshold a self-employed person is credited with a qualifying year towards the state pension without paying anything; below it they earn no automatic credit but may pay voluntarily to protect their record. So the compulsory Class 2 figure is zero, and the calculator shows the zero rather than dropping the line — “do I still have to pay Class 2?” is a question a blank space does not answer.

The voluntary cost is where this gets awkward, and it is worth being exact about why. HMRC publishes a weekly Class 2 rate and no annual figure at all. That is recorded in packages/tax-core/VERIFICATION.md, in the same section that documents the opposite trap for Class 1: HMRC’s published annual National Insurance thresholds are not the weekly ones multiplied by 52, the two disagree, and the annual figure is the one that governs an annual calculation. This package uses HMRC’s annual figures wherever one is published, precisely because multiplying out is unsafe.

For Class 2 there is nothing to reconcile, because there is nothing published to reconcile against. The annual voluntary cost this software reports is therefore the weekly rate times 52, computed here, not a figure anyone can check on gov.uk. The calculator shows the weekly rate, the multiplier and the product on separate lines and labels the product as its own arithmetic, which is the only honest way to present a number whose source is a multiplication rather than a publication. Contributions are due for each week of self-employment, so a part year is less than the full-year figure.

Sources

• gov.uk — Income tax rates and allowances: current and pastThe personal allowance, its taper, and the band schedules for every region — including the Scottish bands that apply to self-employed profit.
• gov.uk — Rates and allowances: National Insurance contributions
• gov.uk — Self-employed National Insurance ratesThe taxpayer-facing page, and the one that publishes the Class 2 rate weekly and never annually.
• gov.uk — Rates and thresholds for employersHMRC’s published annual National Insurance thresholds, which are deliberately not the weekly figures multiplied out.
• gov.uk — Understand your self assessment tax bill: payments on accountNot a figure this calculator uses. Cited because the bill it computes is not the demand a reader receives.
• gov.uk — Expenses if you are self-employedThe step before this calculator starts, and the one it cannot do.

Five things this calculation does not model, stated here rather than buried

• Student loan and postgraduate loan repayments. They are collected through self assessment with the income tax and Class 4 shown here, and nothing in this software models them — no plan types, no thresholds, no rates. The consequence is specific and one-directional: for anyone repaying, the “left over” figure is too high. That is why the calculator says so against the figure itself and not only here.
• Pension contributions. This page passes computeTaxPosition no contribution, so its relief-at-source band extension — the mechanism by which a contribution extends the basic-rate band and shelters higher-rate income — never runs here. A self-employed person paying into a personal pension is shown more income tax than they owe, and there is no field to correct it with. The pension tax relief calculator works out the band extension. Class 4 is genuinely unaffected: pension contributions do not reduce it.
• The profit. Turnover, allowable expenses, capital allowances, the trading allowance, use-of-home and vehicle claims and losses brought forward are all outside this software. A calculator cannot tell a turnover figure from a profit one, so entering the wrong one produces a confident answer with no symptom.
• Payments on account. What is computed is a tax-year liability. HMRC bills a balancing payment plus two instalments towards the following year, each half of this year’s income tax and Class 4, so a first January demand can be about one and a half times the figure here.
• Class 1 National Insurance and the annual maximum. Employment income entered in the other-income box feeds income tax only; the Class 1 an employer deducts is not computed, and neither are the annual maximum rules that can cap total National Insurance across classes in one year.