Self-Employed Tax UK: The Complete 2025/26 Guide

Registering as Self-Employed

You must register with HMRC by 5 October following the tax year in which you started trading. So if you began self-employment in July 2025, the deadline is 5 October 2026. Register online at gov.uk/register-for-self-assessment.

After registration, HMRC will send your UTR (Unique Taxpayer Reference)— a 10-digit number you\'ll need for every Self Assessment filing. Allow 10 working days, longer if you live abroad. Late registration penalties start at £100 and increase the longer you delay.

Income Tax for the Self-Employed

You pay Income Tax on your profits (income minus allowable expenses), at the same rates as employees:

• 0% on the first £12,570 (Personal Allowance)
• 20% basic rate on £12,571–£50,270
• 40% higher rate on £50,271–£125,140
• 45% additional rate above £125,140

Scottish-resident sole traders pay Scottish Income Tax rates on non-savings income (19%–48% across 6 bands). Use our Self-Employed Tax Calculator for a personalised figure.

Class 4 National Insurance

On top of Income Tax, you pay Class 4 NI on profits:

• 0% on profits up to £12,570
• 6% on profits £12,570–£50,270
• 2% on profits above £50,270

Class 4 NI is calculated as part of Self Assessment and paid alongside Income Tax. It cannot be reduced by personal allowance — every £1 above £12,570 attracts at least 6% NI.

Class 2 — Abolition April 2024

From April 2024, Class 2 NI (£3.45/week flat) is no longer compulsory for the self-employed. You still gain entitlement to State Pension and contributory benefits as long as your profits exceed the Small Profits Threshold (£6,725). If your profits are below this, you can still pay Class 2 voluntarily (£3.50/week in 2025/26) to maintain your NI record.

Allowable Business Expenses

You can deduct expenses incurred wholly and exclusively for business purposes. Common allowable expenses:

• Office costs: stationery, postage, telephone, internet (business proportion)
• Travel: business mileage (45p/mile first 10,000, 25p thereafter), train, taxi, accommodation
• Home as office: flat-rate £6/week (£312/year) or actual proportion of bills
• Staff: salaries, NI, pension contributions
• Equipment: via Annual Investment Allowance (AIA) up to £1m
• Professional fees: accountant, solicitor (excluding court fees)
• Marketing: website, advertising, business cards
• Training: for existing skills (not new qualifications)
• Insurance: public liability, professional indemnity, business contents
• Bank charges: business account fees, loan interest

NOT allowable: entertaining clients, private expenses, parking fines, salaries of family members not actually working, capital costs (claim via capital allowances instead).

Self Assessment Process & Deadlines

Self Assessment is HMRC's system for collecting tax from people whose income isn\'t fully taxed through PAYE. Key deadlines:

Late filing penalty starts at £100 (after 1 day), rising to £900 after 3 months and more for further delays. Late payment also attracts interest plus 5% penalty surcharges.

Payments on Account Explained

If your Self Assessment bill is over £1,000 and less than 80% of your tax is collected through PAYE, you must make Payments on Account— advance payments toward next year\'s tax.

Example: If your 2024/25 tax bill is £8,000:

• By 31 January 2026: pay £8,000 (2024/25 balance) + £4,000 (1st payment on account for 2025/26) = £12,000
• By 31 July 2026: pay £4,000 (2nd payment on account)
• By 31 January 2027: balancing payment for 2025/26 + 1st payment for 2026/27

First-year cash flow shock: the year you first owe payments on account, you pay 150% of your tax bill by 31 January. Save throughout the year — many advisors suggest setting aside 30% of every invoice.

VAT Registration & Schemes

You must register for VAT if your taxable turnover exceeds £90,000 in any 12-month rolling period (raised from £85,000 in April 2024). You can also register voluntarily at any turnover.

VAT Schemes

• Standard VAT accounting — quarterly returns, charge 20% on sales, reclaim VAT on purchases
• Flat Rate Scheme (FRS) — for businesses with turnover ≤ £150,000. Pay a flat percentage of gross turnover (varies by industry)
• Cash Accounting — pay VAT on payments received, not invoices issued. Good for cash flow if customers pay late
• Annual Accounting — one return per year, monthly or quarterly payments on account

Use our VAT Calculator for quick add/remove VAT calculations.

Making Tax Digital (MTD)

MTD is HMRC's push to digitise UK tax. Already mandatory for VAT-registered businesses since April 2022. MTD for Income Tax Self Assessment (ITSA) rollout:

• April 2026: mandatory for self-employed and landlords with income above £50,000
• April 2027: extends to income above £30,000
• April 2028 (planned): extends to income above £20,000

MTD requires you to keep digital records using compatible software (e.g. Xero, QuickBooks, FreeAgent, FreshBooks) and submit quarterly updates to HMRC, plus an End of Period Statement and Final Declaration.

IR35 / Off-Payroll Working

If you work through a personal service company (PSC) for clients, you may be caught by IR35. For medium and large clients (private and public sector), the client determines your IR35 status. “Inside IR35” means PAYE-equivalent tax. “Outside IR35” means you keep your traditional corporate tax position. The CEST tool (gov.uk) gives indicative status. See our IR35 glossary entry for more detail.

Sole Trader vs Limited Company

At higher profit levels, a limited company can be more tax-efficient than sole trader status. Rough rule of thumb: above ~£40k–£50k annual profit, a limited company starts saving tax.

See our Sole Trader vs Limited Company comparison for the trade-offs.

FAQs