A guide to self-employed tax codes

Tax codes are part of the PAYE tax system, so you don’t have one for your self-employed income. However, there are certain things that self-employed people need to know about tax reference numbers.

Understanding PAYE tax codes

HMRC uses tax codes to tell employers how much tax to deduct from an employee’s pay through the Pay As You Earn (PAYE) system.

PAYE tax codes are made up of a number followed by a letter, for example 1100L. A tax code isn’t unique - lots of people have the same tax code.

The number in the tax code (e.g. 1100) indicates the amount of money you can earn tax-free. For example, 1100 indicates that you can earn £11,000 in the current tax year before you need to pay tax.

The letter in the tax code indicates the level of personal allowance you can get, based on your personal circumstance. The letter L, for example, means that you’re entitled to the standard tax-free personal allowance.

There’s a handy guide to tax codes on the government’s website.

Self-employed tax codes

If you’re self-employed, you pay tax on your self-employed income through Self Assessment rather than PAYE, so you don’t have a tax code for this income.

However, if you have money coming in from other sources besides self-employment - for example a job or a pension - you’ll have tax codes for these income sources. You can check your tax code by looking at your P45 or your payslip, and challenge it if you think it’s wrong.

Paying your Self Assessment tax bill through your tax code

If you have income from both self-employment and employment, you may be able to pay your Self Assessment tax bill through your tax code.

This means that HMRC adjusts your tax code to reflect your self-employed earnings, and will take the tax you owe from your salary when your PAYE tax is taken.

You can only choose this option if your Self Assessment tax bill is lower than £3,000 and you submit your online tax return by 30 December. There are other criteria too, which you can check on the government’s website.

Unique Taxpayer Reference

A tax reference that all self-employed people do have is a Unique Taxpayer Reference (UTR). It’s important to understand that this is different from a PAYE tax code and it’s also different from a National Insurance number.

A UTR is a 10-digit code that you’re given by HMRC when you register as self-employed or set up a limited company. HMRC uses it to identify your company for tax purposes.

Your UTR doesn’t change: you have the same one throughout your life. If you stop being self-employed and then become self-employed again later, you’ll still have the same UTR.

You can find your UTR on previous tax returns and in your HMRC online account. It’s also found on other documents from HMRC, like notices and payment reminders. If you can’t find your UTR, you can call HMRC’s Self Assessment helpline.

Paying tax if you’re self-employed

If you’re self-employed, you’re responsible for telling HMRC you’re self-employed, for filing a Self Assessment tax return each year, and for paying your tax bill and National Insurance Contributions. Check out our tax return tips for more information.

If you stop being self-employed, you need to tell HMRC, otherwise you’ll still be expected to file a tax return and you may be fined if you don’t do so. Even if you begin paying tax through PAYE and you have a tax code, HMRC won’t automatically assume that you’re no longer earning self-employed income, so remember to let them know.

Are you clear on self-employed tax codes, or do you still have questions? Let us know in the comments.

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