Self-employment basics: Self Assessment, NI and Making Tax Digital
Quick answer: When you start working for yourself you become responsible for telling HMRC, completing a Self Assessment return each year, and paying Income Tax and National Insurance on your profits.
When you start working for yourself you become responsible for telling HMRC, completing a Self Assessment return each year, and paying Income Tax and National Insurance on your profits. From April 2026, Making Tax Digital for Income Tax adds quarterly reporting for higher-earning sole traders and landlords.
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Primary source: https://www.gov.uk/set-up-self-employed
When you need to register
You must tell HMRC and register for Self Assessment if your self-employed income (after costs) goes above the £1,000 trading allowance in a tax year, or if you become a partner in a partnership, or owe any tax on a side income.
Register online via gov.uk/register-for-self-assessment by 5 October following the end of the tax year you started trading (e.g. by 5 October 2026 for a business started during the 2025/26 tax year that ran from 6 April 2025).
HMRC sends you a Unique Taxpayer Reference (UTR) and an activation code — keep these safe.
The Self Assessment year
Tax year: 6 April to 5 April. Paper returns must be filed by 31 October after the tax year ends. Online returns must be filed and any tax paid by 31 January.
If your tax bill is over £1,000 (and most of your income is not already taxed at source), HMRC requires Payments on Account: two instalments towards next year's bill, each 50% of your last bill, due 31 January and 31 July.
Late filing penalty: £100 the day after the deadline; further penalties at 3, 6 and 12 months. Late payment also attracts interest and 5% surcharges at 30 days, 6 months and 12 months.
Class 2 and Class 4 National Insurance
From 6 April 2024 self-employed people earning above the Small Profits Threshold (£6,725) automatically get a National Insurance qualifying year for State Pension purposes without paying Class 2 — the mandatory £3.45 weekly Class 2 contribution was abolished.
If your profits are below £6,725 you can still pay Class 2 voluntarily at £3.45 a week — the cheapest way to build State Pension entitlement.
Class 4 NI on profits between £12,570 and £50,270 is 6% (down from 9% on 6 April 2024). Profits above £50,270 are at 2%. Class 4 NI is paid alongside Income Tax through Self Assessment.
Making Tax Digital for Income Tax
From April 2026, sole traders and landlords with combined self-employment and property income above £50,000 must keep digital records and send quarterly summaries to HMRC using MTD-compatible software, plus an end-of-year statement.
From April 2027 the threshold drops to £30,000. Government has signalled a further extension to £20,000 from April 2028.
MTD does not change how much tax you pay — only how and when you report. Start choosing software well before your threshold date.
Allowable expenses
You can deduct ordinary business costs from turnover before tax: stock, materials, business travel, advertising, professional fees, business insurance, a reasonable proportion of home running costs if you work from home, and capital allowances on equipment.
Simplified expenses (a flat-rate calculation) is an optional alternative for some categories — vehicles, working from home and living on business premises. HMRC publishes the rates.
Common questions
- Do I need to register for VAT?
- Only if your VAT-taxable turnover goes above £90,000 in any rolling 12 months (the threshold from 1 April 2024) — registration is then compulsory. You can register voluntarily before then to reclaim VAT on costs.
- Should I be a sole trader or set up a limited company?
- It depends on profits, risk, and how you want to take money out. Sole trader is simpler and cheaper; a limited company gives limited liability but adds Corporation Tax (currently 19%/25%), filing duties at Companies House and stricter rules on taking dividends. Free advice is available from a local Business Gateway or Growth Hub.
- What if I have a job AND a side business?
- PAYE handles your employed income; Self Assessment handles your self-employed profits. HMRC adjusts your tax code or collects extra tax through the return. You still get one personal allowance (£12,570) across all income.