Becoming self-employed offers flexibility and independence, but it also brings new tax responsibilities. At Applegrow Financial Advisors, we support self-employed individuals across the UK by providing clear guidance on tax compliance, planning, and record-keeping.
Below is an overview of the key tax matters every self-employed person should understand.
If you start working for yourself, you must register as self-employed with HMRC. Registration must be completed by 5 October following the end of the tax year in which your self-employment begins. Failure to register on time may result in penalties.
Once registered, your tax position will differ significantly from that of an employee. Tax and National Insurance will no longer be deducted automatically from your income. Instead, you will receive tax bills at a later date, making forward planning essential.
During the early stages of a business, estimating tax liabilities can be challenging—particularly if records are not kept up to date. At Applegrow, we help you understand expected tax payments and plan ahead to avoid unexpected financial pressure.
Taxable profits are calculated based on your business profit, not on the money you withdraw for personal use.
You are generally allowed to deduct business expenses that are incurred wholly and exclusively for business purposes. Common examples include:
Office and running costs
Professional fees
Marketing and advertising
Certain travel and vehicle costs
For most business equipment, tax relief may be available through capital allowances, often allowing the full cost to be deducted up to annual limits. Cars are treated differently, with relief generally spread over several years.
If goods are taken from the business for personal use, they must usually be recorded at market value. Payments taken by the business owner (drawings) are not deductible, as tax is charged on total profits. However, wages paid to a spouse or partner may be deductible if they reflect genuine work carried out.
Additional adjustments and flat-rate deductions—such as for working from home—may also be available depending on your circumstances.
From the 2025/26 tax year onwards, tax will be charged on profits actually earned between 6 April and 5 April each year.
If your accounting period does not align with these dates, profits from more than one set of accounts may need to be apportioned to determine the taxable amount for the year. Provisional figures may be used if final accounts are not yet available.
This change makes accurate record-keeping more important than ever.
Self-employed individuals must submit an annual Self Assessment tax return.
For a business starting in 2025/26, the deadlines are:
31 October 2026 for paper returns
31 January 2027 for online returns
Late submissions automatically trigger penalties, even if no tax is due.
Income tax and Class 4 National Insurance are usually paid through payments on account, which are advance payments towards the following year’s tax bill.
For 2025/26, payments on account are normally due on:
31 January 2026
31 July 2026
These payments are based on the previous year’s tax liability. The remaining balance is due on 31 January 2027, alongside the first payment on account for the next tax year.
If your tax liability is expected to be lower, payments on account may be reduced—though this should be done carefully to avoid interest charges.
In some cases, new businesses may not need to make payments on account during their first year.
National Insurance rules for the self-employed have changed in recent years:
Profits above £12,570:
Class 2 NICs are no longer payable, but entitlement to State benefits remains.
Profits between £6,725 and £12,570:
National Insurance credits apply without payment.
Profits below £6,725:
Voluntary Class 2 contributions may be paid to maintain benefit entitlement.
Class 4 NICs apply at:
6% on profits between £12,570 and £50,270
2% on profits above £50,270
Class 4 NICs are paid alongside income tax.
It is essential to set aside funds throughout the year to meet tax and National Insurance liabilities. Interest is charged on late payments and is not deductible for tax purposes. Proactive planning helps avoid unnecessary costs.
To simplify tax reporting for small businesses, HMRC allows eligible self-employed individuals to use the cash basis.
Under the cash basis:
Income is taxed when received
Expenses are claimed when paid
There is no need to track debtors, creditors, or stock
Capital allowances are generally not required
From 2024/25, the cash basis is the default method, although businesses may choose to opt for traditional accrual accounting if preferred.
Applegrow Financial Advisors provides clear, tailored advice to help self-employed individuals remain compliant, tax-efficient, and financially confident.
