Self Employment Income
Are you receiving self-employment or sole trader income in the UK? If so, you may be required to submit an annual self-assessment tax return to HMRC and pay any income tax and National Insurance contributions that are due on your self-employment profits. It is important to remain compliant with your tax obligations by filing annual tax returns and paying your taxes on time.
At Zahtax Accountants, our expert team of self-employed accountants will ensure that your accounts and tax returns are prepared accurately, all legitimate expenses are claimed correctly, and your tax liability is minimised wherever possible.
- Chartered Certified Accountants
- Fixed Fee Services
- Tax Liability Minimisation
What is self-employment Income?
If you are earning money by working for yourself, rather than being employed by someone else, you are earning self-employment income. In the UK, people may earn self-employment income in various fields and sectors such as gardening, IT, designing, building, mechanics, freelancing, construction work, selling products, and more.
The self employment income is subject to Income Tax and National Insurance contributions, and accurate record keeping is essential to ensure that you stay compliant with the HMRC filings and tax payments.
It is important to note that self-employment income is different from earning a salary as an employee of a company or organisation, or from working through a limited company as a director. Self-employment income comes from running your own business independently.
How is the self employment Income calculated?
The self-employment income is calculated by taking the total income from your self-employment activities (e.g. gardening, designing, construction, etc.) and subtracting all the allowable self-employment related expenses. The resulting figure provides the taxable profits used for calculating the income tax and National Insurance due.
Here is a more detailed explanation:
- Add Up All the Money received from your customers related to your self employment work. This is often called your turnover.
- Deduct all your self employment related expenses that are wholly and exclusively for your self employment work — e.g. Materials, Equipment and Tools, Office rent, utilities, Travel costs, advertising and so on.
- Turnover Minus Expenses = This gives you your net profit.
- Deduct Capital Allowances: If you buy assets (e.g. Vehicle, Machinery etc, you may be eligible to claim capital allowances which will reduce your taxable profits.
- Turnover Minus Expenses Minus Capital Allowances = Taxable Profits
- You will have Income tax and Class 2 and Class 4 National Insurance payable on these self employment profits/income at the applicable rates for the tax year if your profits exceed a certain threshold.
What Taxes Do I Have to Pay as a Sole Trader in the UK?
As a self employed individual earning self employed income in the UK, you’re responsible for paying income tax, Class 2 National Insurance, and Class 4 National Insurance on your business profits, if they exceed certain thresholds. These taxes are reported through your self employment tax return, submitted via the HMRC self-assessment system. Understanding your tax obligations is essential to avoid unexpected bills and penalties. A qualified accountant for self employed businesses can help you calculate your liabilities accurately, claim allowable expenses, and ensure your tax return is filed correctly and on time.
Income Tax and National Insurance Rates on Self Employment Income (2025/26)
Income Tax Rates 2025/26
Tax Type
Band / Threshold
Rate
Notes
Income Tax
Up to £12,570
0%
Personal allowance – no tax payable
Income Tax
£12,571 – £50,270
20%
Basic rate band
Income Tax
£50,271 – £125,140
40%
Higher rate band
Income Tax
Over £125,140
45%
Additional rate – no personal allowance available
National Insurance Rates
Class 2 & Class 4 NI contributions
National Insurance
Band / Threshold
Class 2 NICs
Profits over £6,725/year
£3.45 per week
Flat rate if profits exceed threshold
Class 4 NICs
£12,570 – £50,270
6%
Charged on taxable profits
Class 4 NICs
Over £50,270
2%
Charged on profits above this threshold
Key Tax Deadlines for Self Employed Businesses
If you’re operating as a self employed business in the UK, it’s essential to stay on top of your filing and payment deadlines to avoid penalties. Below are the key dates to remember:
- Paper Tax Return Deadline: 31 October (after the end of the tax year). Example: For the 2024/25 tax year (which ends on 5 April 2025), the paper return deadline is 31 October 2025
- Online Tax Return Deadline - 31 January. Example: For the 2024/25 tax year, the online return must be filed by 31 January 2026
- 31 January – Deadline to submit your online Self Assessment tax return.
- 31 January – Deadline to pay any tax owed for the previous tax year, including the first payment on account (if applicable).
- Late Filing by 1 day: £100 penalty if your return is up to 3 months late; more if it’s later
- Late by 3 Months: Additional Penalty - £10 per day, up to a maximum of £900.
- Late by 6 Months: Further Penalty - The greater of: £300 or 5% of the tax due. This is added on top of the previous penalties.
- Late by 12 Months: Additional Penalty - The greater of £300 or 5% of the tax due. n serious cases (e.g., deliberate concealment), this can increase to 100% of the tax due.
How Zahtax Can Help Self employed Businesses
At Zahtax, we are specialist Accountants for Self Employed individuals, providing expert support tailored to the needs of sole traders across the UK. Whether you’re just starting out or need help staying compliant, our services cover all aspects of sole trader accounting and tax.
We can assist you with:
- Registering your sole trader business with HMRC
- Setting up online accounting software for efficient record-keeping
- Advising on allowable business expenses to maximise your tax savings
- Ongoing support and expert advice on accounting and tax compliance
- Guidance on claiming all legitimate expenses to legally reduce your tax bill
- Preparation of annual sole trader accounts
- Accurate completion and filing of your sole trader Self Assessment tax return
- Calculation of your sole trader tax liability
- Submission of your tax return directly to HMRC, ensuring timely compliance
Frequently Asked Questions
Get answers to common questions about sole trader tax requirements and our services.
What is the deadline for self employed businesses?
The deadline for online self-assessment tax returns is 31st January following the end of the tax year. For the 2023/24 tax year, the deadline is 31st January 2025. Paper returns must be submitted by 31st October.
Do I need to register as a self employed business?
Yes, you must register with HMRC as soon as you start self-employment or by 5th October in your business’s second tax year, whichever is earlier. You can register online through the HMRC website or we can help you with the registration process.
What expenses can I claim as a self employed businessr?
You can claim expenses that are wholly and exclusively for business purposes, including office costs, travel expenses, equipment, professional fees, insurance, and marketing costs. We can help you identify all allowable expenses to minimize your tax liability.
How much does your Self employed tax service cost?
We offer fixed-fee pricing for transparency. Our sole trader tax return service starts from £299, which includes preparation and submission of your self-assessment, advice on allowable expenses, and ongoing support throughout the year.
What's the difference between sole trader and limited company?
As a sole trader, you and your business are legally the same entity, and you pay income tax and National Insurance on profits. A limited company is a separate legal entity, and you typically pay corporation tax on profits and income tax/NI on salary/dividends. We can advise which structure is most tax-efficient for your situation.
Do I need to keep records as a Self employed?
Yes, you must keep records of your business income and expenses for at least 5 years after the 31st January submission deadline. This includes invoices, receipts, bank statements, and records of business mileage. We can help you set up an efficient record-keeping system.
Can you help with VAT registration?
Yes, we provide complete VAT services including registration, returns, and advice. You must register for VAT if your taxable turnover exceeds £85,000 (2023/24 threshold), but you can also register voluntarily. We’ll assess whether VAT registration would benefit your business.