Self-Employed Tax Basics

If you start working for yourself, you must register with HMRC as self-employed. You can do this online and should register by 5 October in your business's second tax year. Once registered, you'll need to complete a Self Assessment tax return each year and keep records of your income and expenses.

As a self-employed individual, you pay income tax on your profits (income minus allowable expenses). The tax bands are the same as for employed workers: Personal Allowance (£12,570 tax-free), Basic rate (20% on £12,571-£50,270), Higher rate (40% on £50,271-£125,140), and Additional rate (45% above £125,140). These thresholds apply to the 2024/25 tax year.

Self-employed individuals pay two types of National Insurance: Class 2 (a flat weekly rate if profits exceed £12,570) and Class 4 (a percentage of profits). Class 4 rates are currently 6% on profits between £12,570 and £50,270, and 2% on profits above this. These contributions count towards your State Pension and certain benefits.

You can deduct legitimate business expenses from your income to reduce your tax bill. Common allowable expenses include: office costs (stationery, phone bills), travel costs (business journeys, not commuting), professional fees, marketing and advertising, and a proportion of home costs if you work from home. Keep receipts and records for at least 5 years.

If your tax bill exceeds £1,000, HMRC typically requires payments on account—advance payments towards next year's tax bill. These are usually two payments, each half of your previous year's tax bill, due on 31 January and 31 July. This can catch new business owners off guard, so plan for these additional payments.

The tax year runs from 6 April to 5 April. Key deadlines: Register as self-employed by 5 October following your first tax year. Submit paper tax returns by 31 October, or online returns by 31 January. Pay any tax owed by 31 January. Missing deadlines results in automatic penalties, so set reminders and consider submitting early.