Self Employed Tax Return Case Study 2018-19

For this blog post we are running through a tax return calculation example of a self employed sole trader for the 2018-19 tax year (6th April 2018 to 5th April 2019).

Key information for our example:

  • The tax payer is a freelance web designer trading as a self employed sole trader
  • They have no other income to consider
  • They have a student loan balance outstanding on Plan 1
  • Their freelance income for 2018-19 is £35,000
  • They have £5,000 of tax allowable business costs
  • They make £2,000 of personal pension contributions
  • They are a UK, non-Scottish, resident tax payer


Self Employed Tax Case Study 2018-19



Tax return calculation 2018-19


With income of £35,000 and costs of £5,000 for the 2018-19 tax year from your freelance work, you’ll be left with a taxable profit of £30,000.

This will be subject to both income tax and national insurance. You will also have to pay back some of your student loan.

Let’s go through how each of these work, and then we’ll see how much you’re left with once income tax, national insurance contributions and student loan repayments have been deducted.


Income tax


For 2018-19 the tax free personal allowance is set at £11,850 – so the first £11,850 of your profit is tax free.

The next £34,500 of your profit will be taxed at the basic rate of 20%, above this there are higher tax rates.

As your taxable profit is within the basic rate tax band the tax calculation is as follows:

  • First £11,850 tax free (personal allowance)
  • Balance of £18,150 taxed at 20% = £3,630 income tax



National insurance contributions


As a sole trader, your profits are subject to both Class 2 and Class 4 national insurance contributions, both of which are paid through your tax return.


Class 2

Any sole trader with profits above £6,205 per year for 2018-19 has to pay Class 2 national insurance contributions.

These are paid at a flat rate of £2.95 per week, which is £153.40 for the full year.


Class 4

In addition to the Class 2 contributions, if your profit is above £8,424, you will be charged Class 4 national insurance contributions at 9% of profits. The rate drops to 2% on profit above £46,350 for 2018-19.

Based on taxable profits of £30,000 the class 4 national insurance calculation is as follows:

  • First £8,424 £nil
  • Balance of £21,576 at 9% = £1,941.84 class 4 national insurance



Pension contributions


When you make a contribution to a personal pension, your pension provider usually gives you a tax “gross up” from HMRC which they put into your personal pension scheme along with your own contribution.

So, your £2,000 pension contribution becomes £2,500. This is the equivalent of 20% basic rate tax.

If you were a higher rate taxpayer, you would also get higher rate tax relief on the personal pension contributions you made. You get this by having your basic rate tax band increased by the amount of your grossed-up pension contribution.

With your £2,000 net / £2,500 gross pension contribution, your basic rate band increases from £34,500 to £37,000 meaning you wouldn’t start paying higher rate tax of 40% until your profit was above £48,850.

However as your income is £30,000 for 2018-19, this is below the higher tax band so you will not get any tax relief on your tax return for your pension contributions.

However personal pension contributions are  taken into account when calculating your student loan repayment as we will explain in the next section.

You may want to read our article about Self Employed Pension Tax Relief



Student loan repayments


As your student loan is plan 1, your student loan repayments will be calculated at 9% of any income above £18,330 for the 2018-19 tax year.

However as you have made personal pension contributions, the gross contributions are added to this £18,330 to increase the repayment threshold to £20,830.

Based on taxable profits of £30,000 the student loan repayments will be calculated as follows:

  • First £20,830 £nil
  • Balance £9,170 at 9% = £825.30 student loan repayments



Summary of tax calculations for 2018-19

  • Income tax £3,630.00
  • Class 2 national insurance £153.40
  • Class 4 national insurance £1,941.84
  • Student loan repayments £825.30


Total due to HMRC £6,550.54


Take home pay:

£30,000 taxable profit less £6,551 owed to HMRC (rounded) = £23.449 take home pay

Percentage take home pay = 78%