A guide to tax for the self-employed

When you work for yourself, sorting your taxes can feel like a daunting task. Most of the time you won’t have a full-time finance team taking care of it behind the scenes – it’s just you, your income and HMRC. While that may not sound like much fun, once you understand the basics, self-employment tax doesn’t have to be something you dread doing.

Whether you’ve just started a business or are looking for a refresher, we can’t overstate how important it is to develop an understanding of tax implications for the self-employed. Getting it right can help you save money, stay compliant and plan with confidence.

This guide breaks down several principles of self-employment tax in the UK, from Income Tax and National Insurance to expenses, deadlines and what to consider if you’re thinking about going limited. As every business and circumstance is different, we would always recommend seeing your own professional advice as well.

Note that all the information we’ve included in this article is correct on the date it was written but may be subject to change.

What is self-employment tax?

Let’s start with the big picture. Self-employment tax isn’t just one tax — it’s a mix of different responsibilities you take on when you work for yourself. If you’re a sole trader, you’ll need to report your income to HMRC and pay:

• Income Tax on your profits
• National Insurance contributions (or NICs)
• Possibly VAT, if your turnover exceeds the threshold

If you’re coming from an employed job, self-employment demands a change in your mindset. Instead of an employer automatically taking your tax from your pay packet, you’re in charge of tracking your earnings and submitting a Self Assessment tax return each year. Keeping records, understanding what you can claim and knowing the key deadlines are essential practices.

Registering as self-employed

Before you do anything else, you’ll need to let HMRC know you’re working for yourself. You can register as a sole trader online at GOV.UK. After registering, you’ll get a Unique Taxpayer Reference (UTR) number, which will be used in your self-assessment submission.

You must register by 5th October in your business’s second tax year. Miss the deadline, and you could be hit with a fine.

Income Tax: what you need to pay

Income Tax applies to your profits, not your total income. That means you can subtract allowable expenses (more on those in a moment) before working out how much tax you owe.

For the 2024/25 tax year, the rates are:

Source: GOV.UK

Your personal allowance goes down if you earn more than £100,000, tapering down to zero at £125,140.

National Insurance for the self-employed

National Insurance Contributions (NICs) help fund things like the State Pension and other public benefits. For sole traders, two types of NIC apply:

• Class 2 NICs: Abolished from April 2024, these were flat-rate contributions of £3.45 per week applied to profits above the Small Profits Threshold (£6,725 for 2023/24). Since April 2024, Class 2 was no longer required, though voluntary payments can still help protect your State Pension entitlement.
• Class 4 NICs: If your annual profits are higher than £12,570 you have to pay Class 4 National Insurance Contributions. These are based on your annual profits:
• 6% on profits between £12,570 and £50,270
• 2% on profits over £50,270

If your annual profits are less than £6,725, you don’t need to pay National Insurance – but you can decide to pay Class 2 NICs. Whether you decide to will depend on your individual circumstances. Here’s more information about voluntary contributions.

How will I pay National Insurance Contributions?

You’ll pay both Class 4 NICs and Income Tax via your Self Assessment. The amount you’ll have to pay is calculated once you submit your assessment, but it’s a good idea to have a running estimate throughout the year. An accountant or bookkeeper can help you keep an accurate record and estimation.

What can you claim as allowable expenses?

Claiming the right expenses can make a big difference to your tax bill as they reduce the amount of profit you’re taxed on. But only business-related costs count.

Some of the most common allowable expenses include:

• Office costs like stationery and phone bills
• Travel costs like fuel, parking and train tickets
• Staff costs like salaries, subcontractor payments and training
• Premises costs like heating and lighting
• Marketing and advertising like website costs, ads, flyers and business cards
• Accountancy or legal fees
• Insurance costs like public liability insurance and professional indemnity insurance.

If you work from home, you can claim a proportion of your home running costs or use simplified flat rates provided by HMRC.

A word of caution: keep detailed records. Receipts, invoices, mileage logs – all of it counts when HMRC comes knocking.

Let’s look at an example

Scenario:

• Self-employed income: £50,000
• Allowable expenses: £10,000
• Taxable profit: £40,000
  

Step 1: Apply Income Tax

Taxable profit: £40,000

• Personal Allowance (tax-free): £12,570
• Remaining amount taxable: £40,000 − £12,570 = £27,430

Tax on £27,430 falls entirely within the basic rate (20%):

• £27,430 × 20% = £5,486

Income Tax owed: £5,486

Step 2: Apply National Insurance (Class 4 NICs) 

Class 4 NICs are:

• 6% on profits between £12,570 and £50,270
• 2% above £50,270 (not relevant here since profit is £40,000)

So:

• Profit between £12,570 and £40,000 = £27,430

NICs:

• £27,430 × 6% = £1,645.80

Class 4 NICs owed: £1,645.80

Final tax bill summary

Self-employed tax deadlines you need to know

Timing is everything when it comes to tax. Miss a deadline and you risk penalties that can escalate quickly.

Here are the key dates for your 2025 diary:

• 5th April 2025 - The end of the 2024/25 tax year is the last day you pay tax on income earned in that tax year
• 6th April 2025 - The start of the 2025/26 tax year is the first day you’ll pay tax on income earned in the next financial year
• 31st July 2025 - Second payment on account due
• 5th October 2025 - Deadline to register for Self Assessment
• 31st January 2026 - Deadline to file your online tax return and pay tax for the previous year and first payment on account due.

What’s a payment on account?

If your tax bill is over £1,000, HMRC will ask you to make advance payments on next year’s tax. These are due in two instalments: 31st January and 31st July. Each is usually half of your previous year’s tax bill. It’s always a bit of a surprise the first time around so plan it into your finances so you have enough to cover it.

Should you go limited?

As your business grows, there may come a point where operating as a limited company becomes more tax efficient. Limited companies pay Corporation Tax on their profits (currently 19% to 25%, depending on your annual profit), and you can pay yourself through a mix of salary and dividends, which may reduce your personal tax liability.

There are other perks too:

• You get limited liability protection
• Your credibility with clients can improve
• It can be easier to raise finance

But it also comes with extra responsibilities – filing annual accounts, running payroll and taking on more complex admin. For more information on the main considerations, we’ve put together this guide sole traders vs limited companies.

If you're considering the move, Zempler Bank can help you open a business account and even assist with your company formation, taking the hassle out of the transition.

Learn more about how to register your company with Zempler Bank.

Staying organised with your finances

Good tax habits start with good financial habits. That means:

• Keeping accurate records
• Using accounting software or a bookkeeper
• Separating personal and business finances.

Opening a dedicated business bank account makes life easier – and cleaner come tax time. It gives you a clearer view of what’s coming in and going out, which makes it easier to track expenses and plan for tax contributions.

We built the Zempler Bank business account with small businesses in mind. It gives you the tools to manage money and meet your tax obligations without the stress.

Tax is a non-negotiable

Tax might not be the most exciting part of being self-employed, but getting it right is a non-negotiable. With the right knowledge – and right systems – it becomes part of your business rhythm, not a last-minute panic.