If you earn over £1,000 a year outside PAYE employment, HMRC treats you as self-employed. This guide covers the rules that apply whether you're a freelancer, sole trader, contractor or side-hustler: registering, filing, paying, and what you can legally deduct.
Registering with HMRC
Register for Self Assessment by 5 October of the tax year after your self-employment started. For example, if you started earning self-employed income in June 2025, you must register by 5 October 2026. Register at gov.uk/register-for-self-assessment — HMRC posts you a Unique Taxpayer Reference (UTR) within ~10 working days.
Deadlines you must not miss
Missing the 31 January online deadline is £100 flat, then £10/day after 3 months (capped at £900), then 5% of tax owed at 6 months and again at 12 months. Interest runs on unpaid tax at Base Rate + 4%.
How much tax will you actually pay
Your trading profit (income minus allowable expenses) sits on top of any other income you have (employment, rental, dividends etc.) and is taxed at standard UK Income Tax bands — so the first £12,570 is usually tax-free, then 20% up to £50,270, etc.
| Profit band | Income Tax | Class 4 NI | Combined |
|---|---|---|---|
| Up to £12,570 | 0% | 0% | 0% |
| £12,571 – £50,270 | 20% | 6% | 26% |
| £50,271 – £125,140 | 40% | 2% | 42% |
| Over £125,140 | 45% | 2% | 47% |
Class 2 NI (a voluntary £3.45/week) was effectively scrapped from April 2024 but you can still pay to maintain your state pension record if profits are below £6,725.
Payments on Account (the gotcha)
If your annual tax bill exceeds £1,000 (and at least 20% of your tax is not collected via PAYE), HMRC asks you to pay tax in advance for the current year. You pay:
- 31 January: balancing payment for previous year + first half of current-year estimate (50%)
- 31 July: second half of current-year estimate (50%)
Each is half of what you owed last year. If your income is rising, this is painful in year 2 because you effectively pay ~1.5 years of tax in one go.
Allowable expenses — the big categories
HMRC lets you deduct costs that are "wholly and exclusively for business". Common ones:
- Office costs: stationery, phone/internet (business portion), software subscriptions
- Travel: train/taxi/parking for business trips, mileage at 45p/mile (25p over 10k)
- Staff: salaries, subcontractor fees, employer's NI
- Stock + raw materials: direct trading costs
- Professional fees: accountant, legal, business insurance
- Marketing: website hosting, ads, professional photography
- Training: courses to maintain existing skills (not to learn new trades)
- Working from home: £6/week flat-rate, or a proportion of actual bills
£1,000 Trading Allowance
If your self-employed income is under £1,000 a year, you don't need to register or file at all. If it's over, you can either claim actual expenses or use the £1,000 trading allowance (whichever is higher) — but not both.
Making Tax Digital — coming soon
From April 2026, anyone with trading or rental income over £50,000 must keep digital records and submit quarterly updates to HMRC via compatible software. The threshold drops to £30,000 from April 2027. If you're above these thresholds, start looking at MTD-ready accounting software (FreeAgent, Xero, QuickBooks) now.