Going self-employed in the UK means you’re responsible for your own tax. There’s no employer to deduct income tax and National Insurance from your pay — you must calculate, report, and pay it yourself through Self Assessment. This guide walks through everything you need to know.
Self Assessment: Registration and Deadlines
Self Assessment is how HMRC collects income tax from people who aren’t taxed at source through PAYE. If you’re self-employed, you must register and file every year.
Key Deadlines
| Deadline | What you must do |
|---|---|
| 5 October after your first year of self-employment | Register for Self Assessment |
| 31 January | File your online tax return for the previous tax year |
| 31 January | Pay any tax you owe for the previous tax year |
| 31 July | Make your second payment on account (if applicable) |
The UK tax year runs from 6 April to 5 April the following year. For example, the 2025/26 tax year runs from 6 April 2025 to 5 April 2026. Your Self Assessment filing and payment deadline for that year is 31 January 2027.
Late filing triggers automatic penalties:
- £100 immediately if you’re even one day late
- £10 per day after 3 months (up to 90 days)
- £300 or 5% of tax owed after 6 months
- Another £300 or 5% of tax owed after 12 months
Late payment also accrues interest on top of what you owe.
Income Tax Bands
Self-employed individuals pay the same income tax rates as employees. The key difference is that you calculate and pay it yourself.
Tax Bands (2025/26)
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 – £50,270 | 20% |
| Higher Rate | £50,271 – £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Your Personal Allowance is £12,570. This is the amount you can earn before you start paying income tax. For every £2 you earn above £100,000, your Personal Allowance reduces by £1 — meaning it is fully withdrawn at £125,140.
Your tax is calculated on your trading profits, not your total income. Trading profits are your self-employed income minus allowable business expenses.
National Insurance for the Self-Employed
Self-employed workers pay two types of National Insurance: Class 2 and Class 4.
Class 2 National Insurance
Class 2 NI is a flat weekly contribution that builds your entitlement to the State Pension and other contributory benefits.
- Rate: £3.45 per week (£179.40 per year)
- Threshold: Payable if your profits exceed £12,570 per year
- Below threshold: Optional — you can pay voluntarily if your profits are below £12,570
Paying Class 2 NI protects your State Pension record. If you don’t pay and don’t have sufficient qualifying years, you could receive a lower State Pension when you retire.
Class 4 National Insurance
Class 4 NI is a percentage of your trading profits, similar to employee NI but paid by you rather than an employer.
| Profits band | Rate |
|---|---|
| £12,570 – £50,270 | 6% |
| Above £50,270 | 2% |
| Below £12,570 | 0% |
Class 4 NI does not count towards your State Pension or contributory benefits — it is purely a tax on self-employed profits.
Allowable Business Expenses
You can deduct legitimate business expenses from your self-employed income before calculating tax. This reduces your taxable profit and the amount of tax you owe.
Common allowable expenses include:
- Office costs — stationery, printing, postage, software subscriptions
- Travel — fuel, public transport, parking, vehicle maintenance (business use only)
- Clothing — uniforms, protective clothing (not everyday clothes)
- Stock and materials — raw materials, wholesale goods for resale
- Marketing — website hosting, advertising, business cards, social media promotion
- Professional fees — accountant fees, solicitor fees, professional indemnity insurance
- Phone and internet — business use portion of your phone or broadband bill
- Home office — if you work from home, you can use HMRC’s simplified expenses flat rate
Simplified Home Office Expenses
If you work from home, you can claim a flat rate based on hours worked:
| Hours worked from home per month | Flat rate per month |
|---|---|
| 25 – 50 | £10 |
| 51 – 100 | £18 |
| 101 or more | £26 |
This is equivalent to roughly £6 per week for the lowest tier. Alternatively, you can calculate actual costs based on the proportion of your home used for business.
Trading Allowance
The Trading Allowance gives you £1,000 of tax-free income from small trading activities. If your total self-employed trading income is £1,000 or less, you do not need to declare it or pay tax on it.
If your trading income exceeds £1,000, you can either:
- Deduct the £1,000 allowance from your income, or
- Deduct your actual business expenses (whichever is greater)
This is particularly useful for side hustles, casual selling, or part-time freelance work.
Worked Example: Freelance Designer
Let’s walk through a practical example to see how the numbers work in practice.
Scenario: Sarah is a freelance graphic designer. In the 2025/26 tax year, she earns £45,000 in client fees and has £5,000 in allowable business expenses.
Step 1: Calculate Trading Profit
| Amount | |
|---|---|
| Gross income | £45,000 |
| Less: allowable expenses | -£5,000 |
| Trading profit | £40,000 |
Step 2: Calculate Income Tax
Sarah’s trading profit is £40,000. Her income tax is calculated as follows:
| Band | Taxable amount | Rate | Tax |
|---|---|---|---|
| Personal Allowance | £12,570 | 0% | £0 |
| Basic Rate | £27,430 (£40,000 - £12,570) | 20% | £5,486 |
| Total income tax | £5,486 |
Step 3: Calculate National Insurance
Class 2 NI:
Sarah’s profits exceed £12,570, so she must pay Class 2 NI:
| Amount | |
|---|---|
| £3.45 × 52 weeks | £180 |
Class 4 NI:
| Band | Profits | Rate | NI |
|---|---|---|---|
| £12,570 – £40,000 | £27,430 | 6% | £1,646 |
| Total Class 4 NI | £1,646 |
Step 4: Total Tax Bill
| Tax | Amount |
|---|---|
| Income tax | £5,486 |
| Class 2 NI | £180 |
| Class 4 NI | £1,646 |
| Total | £7,312 |
Sarah’s effective tax rate on her £40,000 profit is approximately 18.3%. On her gross income of £45,000, the effective rate is 16.2%.
Tips for Managing Self-Employed Tax
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Keep records from day one — Maintain invoices, receipts, and bank statements from the start. HMRC requires you to keep records for at least 5 years after the 31 January submission deadline.
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Use accounting software — Tools like FreeAgent, Xero, or QuickBooks track income and expenses automatically, generate invoices, and make Self Assessment far easier.
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Set aside 25-30% for tax — Each time you receive payment, transfer 25-30% into a separate savings account. This ensures you have the money when your tax bill falls due.
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File early — Don’t wait until 31 January. Filing early gives you time to check for errors and reduces last-minute stress.
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Consider an accountant — If your affairs are complex (multiple income streams, property income, capital gains), an accountant can save you money and ensure compliance. Fees are an allowable business expense.
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Make payments on account — If your tax bill exceeds £1,000, HMRC may require you to make advance payments in January and July. Budget for these throughout the year.
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Check if you can claim relief — Pension contributions, Gift Aid donations, and trading losses can all reduce your tax bill. An accountant can help identify reliefs you may be entitled to.