Going self-employed in the UK is administratively straightforward — but the tax implications catch many people by surprise. If you earn more than £1,000 from self-employment in a tax year, you must register with HMRC and complete a Self Assessment tax return. Fail to register by 5 October in the year after the tax year, and you may face penalties. This guide covers what you need to know from registration through to payment on account.
The Payments on Account Surprise
Many newly self-employed people are blindsided when, in their first year of Self Assessment, HMRC asks them to pay not just their tax bill but also 50% of next year's estimated bill — due on the same day. This "payment on account" is one of the most common causes of cash flow problems for the newly self-employed. Budget for 150% of your first year's tax bill to avoid a crisis.
Step 1: Register as Self-Employed with HMRC
Register online at GOV.UK/HMRC. You must register by 5 October following the end of the tax year in which you began self-employment. Tax years run 6 April to 5 April. Registration is free and takes about 10 minutes online.
Self Assessment Tax Rates 2026/27
| Taxable Profit Band | Income Tax Rate |
|---|---|
| Up to £12,570 (Personal Allowance) | 0% |
| £12,571–£50,270 (Basic Rate) | 20% |
| £50,271–£125,140 (Higher Rate) | 40% |
| Over £125,140 (Additional Rate) | 45% |
National Insurance for the Self-Employed
Self-employed individuals pay two classes of National Insurance:
- Class 2 NIC: £3.45/week (2026/27) if profits exceed the Small Profits Threshold (£12,570). Paid via Self Assessment.
- Class 4 NIC: 9% on profits between £12,570 and £50,270; 2% above £50,270. Paid via Self Assessment.
Class 2 NIC counts toward your State Pension entitlement. It is important to pay it even if your profits are modest.
Allowable Expenses
You can deduct genuinely incurred business expenses from your taxable profit. Common allowable expenses include:
- Office supplies, business stationery, postage
- Business travel (mileage at 45p/mile for first 10,000 miles; 25p/mile thereafter)
- Business use of home — either simplified flat rate (£26/month if working 101+ hours/month) or actual costs apportioned by rooms/hours
- Professional subscriptions, industry trade bodies
- Marketing costs, website hosting, software subscriptions used for business
- Accountancy fees
- Bank charges on business accounts
Not allowable: personal expenses, clothing (except specialist work clothing/PPE), client entertainment, fines.
VAT Registration
You must register for VAT if your taxable turnover exceeds £90,000 in a 12-month rolling period (2026 threshold). You can register voluntarily below this threshold — which may be beneficial if your clients are VAT-registered businesses. The standard VAT rate is 20%. Register at GOV.UK. Once registered, you must file VAT returns (usually quarterly) via Making Tax Digital (MTD) compatible software.
Practical Self-Employment Tax Routine
Set aside 25–30% of every invoice payment for tax and NIC. Use free or low-cost accounting software (FreeAgent, QuickBooks Self-Employed, Xero) to track income and expenses throughout the year — it makes Self Assessment filing significantly easier. File your return by 31 January (online) or 31 October (paper) for the preceding tax year. Pay any tax owed and your payments on account by 31 January and 31 July.