Self-Employed Tax: What You Need to Know

You Are Your Own Tax Department

When you are employed, your employer deducts income tax and National Insurance from your salary before you see it. When you are self-employed, no one does this for you. You are responsible for calculating what you owe, setting the money aside throughout the year, and paying HMRC on time. Many people who go self-employed for the first time discover this uncomfortable reality when their first tax bill arrives - a bill that covers 18 months of earnings and which they haven't saved for. This guide gives you the framework to avoid that experience.

Registering as Self-Employed

In the UK, you must register with HMRC as self-employed as soon as you start earning from self-employment - ideally before the end of your first tax year (5 April). Registration is done online at HMRC's website and takes about 20 minutes. You'll receive a Unique Taxpayer Reference (UTR) number which you'll use on all future tax correspondence. Failing to register on time doesn't make the tax disappear - it just adds penalties and interest. You are generally required to register by 5 October following the end of your first tax year of self-employment.

What Tax Do Self-Employed People Pay?

As a self-employed person in the UK, you'll typically pay:

Income tax: On your profits above the personal allowance (£12,570 in 2025/26). The basic rate is 20% on profits up to £50,270; higher rate is 40% above that.
Class 4 National Insurance: 6% on profits between £12,570 and £50,270; 2% above £50,270 (2025/26 rates)
Class 2 National Insurance: A flat weekly amount (currently £3.45/week) if profits exceed the small profits threshold, which counts towards your state pension entitlement

Your taxable profit is your income minus your allowable business expenses. Getting your expenses right matters enormously because it directly reduces the profit on which you pay tax. Related reading: how to track business expenses.

The Self-Assessment Tax Return

Self-employed people in the UK file a Self Assessment tax return by 31 January each year, covering the previous tax year (6 April to 5 April). If you file online (which most people do), the deadline for both filing and paying any tax owed is 31 January. Filing on paper has an earlier deadline of 31 October. The return covers your self-employment income and expenses, any other income you received during the year (employment income, rental income, dividends), and generates your tax calculation automatically.

Payments on Account: The Hidden Trap

One of the most surprising aspects of the self-assessment system for new self-employed people is "payments on account." If your tax bill exceeds £1,000, HMRC requires you to make advance payments towards the following year's tax bill at the same time as paying the current year's bill. Specifically: on 31 January, you pay the prior year's tax PLUS 50% of the following year's estimated bill. On 31 July, you pay the other 50% in advance. This means your first significant tax bill can be 150% of your first year's tax liability. Knowing about this in advance allows you to plan and save accordingly.

How Much to Set Aside

A common rule of thumb for UK self-employed individuals is to set aside 25–30% of every payment you receive in a separate savings account for tax and NIC. For higher earners (over £50,270), 35–40% is more appropriate. The exact amount depends on your profit margin - these percentages apply to income, not profit. If your expenses are high relative to income, your actual tax rate on income will be lower. The safest approach is to run a rough tax calculation each quarter and set aside accordingly. See our guide on quarterly estimated tax payments for a more precise approach.

How Note.now Makes This Easy

Note.now tracks your income and expenses throughout the year, giving you a real-time estimate of your tax liability so you can set aside the right amount. Year-end reports export in the format your accountant or tax software needs for your self-assessment return. See also: how to prepare for tax season. Start your free Note.now account and stay on top of your tax year-round.