Self-employed money basics: tax, NI and Self Assessment
Working for yourself is liberating right up until the first tax bill, when it hits you that nobody has been quietly deducting anything on your behalf. Being self-employed means you’re your own payroll department — and the ones who thrive are simply the ones who plan for it. Here are the essentials, in plain English.
This is information, not financial advice. It’s a general guide to self-employed tax in the UK. For anything complex, an accountant usually pays for themselves.
First: put money aside from day one
The single habit that separates calm sole traders from panicked ones is setting money aside as it comes in. A good rule of thumb is to move 25–30% of every payment into a separate “tax” account the moment it lands. When the bill arrives, the money is already there. This one move prevents the classic self-employed crisis: a January tax bill and nothing saved to pay it.
Registering and filing
- Register with HMRC for Self Assessment once you’re trading. The deadline is 5 October after the end of the tax year in which you started.
- There’s a £1,000 trading allowance: if your total self-employed income for the year is under £1,000, you generally don’t need to declare it. Above that, you file a return.
- File your tax return by 31 January (online) following the tax year — and that’s also the date your tax is due. (A paper return is due earlier, by 31 October.)
- Keep records of income and expenses. You can deduct allowable expenses — costs incurred “wholly and exclusively” for the business (tools, stock, mileage, a proportion of home costs) — which reduce the profit you’re taxed on.
The tax and National Insurance you’ll pay
You pay Income Tax on your profit (income minus allowable expenses) at the normal rates, after your Personal Allowance. On top of that comes National Insurance:
- Class 4 NIC (2026/27): 6% on profits between £12,570 and £50,270, then 2% on profits above £50,270.
- Class 2 NIC: no longer something most people pay — if your profits are above the small-profits threshold, your National Insurance record is treated as maintained automatically. If your profits are very low, you can still pay Class 2 voluntarily to protect your State Pension and benefits.
Payments on account: the surprise to plan for
If your Self Assessment bill is more than £1,000, HMRC usually asks for payments on account — two advance payments towards next year’s tax, due on 31 January and 31 July. The sting is in your first year: you can end up paying your first full bill plus half of it again in the same January. It’s not an extra tax — it’s paid in advance — but it’s a cash-flow shock if you’re not expecting it, so budget for it.
VAT and the digital rules
- VAT: you must register for VAT once your turnover passes £90,000 in any rolling 12-month period. Below that it’s optional (and sometimes worth it if your customers are VAT-registered businesses).
- Making Tax Digital for Income Tax: this is the big change. From April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send HMRC quarterly updates through compatible software, instead of one annual return. The threshold drops to £30,000 from April 2027. If that’s you, get software sorted early.
The things employees get that you don’t
Being self-employed means no employer topping up a pension, no sick pay and no paid holiday — so build those in yourself:
- Pension: you get tax relief on personal pension contributions just like employees, but there’s no employer match, so the discipline is on you. Even modest, regular payments matter.
- A buffer: with no sick pay, a healthy emergency fund is doubly important — aim for the higher end of three-to-six months.
- Price for the gaps: your day rate has to cover the holidays, the sick days and the pension an employer would otherwise provide.
The bottom line
Treat yourself like a business with a payroll: set aside 25–30% as you earn, register and file on time, know your Class 4 NIC and payment-on-account dates, watch the £90,000 VAT line, and prepare for Making Tax Digital if you’re over £50,000. Get the admin boring and predictable, and self-employment becomes a lot less stressful.
Work out your employed take-home for comparison →
Last checked 1 August 2026. UK figures for 2026/27: Class 4 NIC 6% / 2%; VAT threshold £90,000; Making Tax Digital for Income Tax from April 2026 (£50,000+). Not a personal recommendation.
Sources
Just so you know: this guide is information and journalism, not financial advice, and we don't recommend specific financial products. Your circumstances are your own — if you need personal advice, speak to a suitably qualified adviser. Information was correct at the "last updated" date above but things change; always check the linked primary sources.