Being self-employed in the UK means taking on responsibility for your own tax affairs. Unlike employees, whose tax is deducted through PAYE, self-employed people must register with HMRC, file an annual self-assessment tax return, and pay their own income tax and National Insurance contributions.
- Registering as self-employed
- What you pay tax on
- Payment on account
Registering as self-employed
You must register with HMRC by 5 October in your second year of trading. Failure to register on time can result in penalties.
What you pay tax on
As a sole trader, you pay income tax on your profits — your income minus allowable business expenses. The personal allowance (£12,570 in 2026/27) applies as normal. You also pay Class 4 National Insurance contributions on profits above £12,570 — currently 9% up to £50,270 and 2% above.
Allowable expenses
You can deduct legitimate business expenses including office costs, travel to client sites, equipment, professional subscriptions, accountancy fees, and a proportion of home costs if you work from home.
Payment on account
HMRC operates a payment on account system for self-employed people with tax bills above £1,000. You pay your current year's tax plus a 50% advance towards next year in January, and a second 50% advance in July. This catches many new self-employed people off guard.
Bottom line
Good record-keeping from day one makes self-assessment far less stressful. Set aside 25-30% of all income for tax as you earn it, and consider accounting software or an accountant — the cost is usually offset by the tax savings they identify.