Starting Self-Employment Guide UK (Register, Tax, National Insurance 2026)

Registering as Self-Employed with HMRC

You must register as self-employed with HMRC by 5 October 2026 (or by 5 October in your second tax year if you started in the current year). Registration is done online through the HMRC website using the government gateway. You will need your National Insurance number, personal details, and the date you started self-employment. After registering, HMRC will set up a Self Assessment account (sometimes called a UTR — Unique Taxpayer Reference). You will receive a letter with your UTR within 10 working days. You must also register for Class 2 National Insurance at the same time — this is usually done automatically when you register as self-employed. If you already file Self Assessment as an employee (e.g., for rental income), you still need to notify HMRC that you are now self-employed as a separate source of income. Registration is free. If you fail to register by the deadline, HMRC may charge a penalty. You can also register voluntarily if you are not yet earning but intend to start self-employment soon. Once registered, HMRC will write to you with your online account details and filing deadlines. Keep your government gateway credentials safe — you will use them every year.

National Insurance Contributions (Class 2 and Class 4)

Self-employed people pay two types of National Insurance: Class 2 and Class 4. Class 2 NICs are a flat weekly amount of £3.50 per week in 2026/27 (or £182 per year). You pay Class 2 if your self-employed profits exceed the Small Profits Threshold of £6,725 per year. If your profits are below that, you can pay voluntarily to protect your National Insurance record for State Pension and other benefits. Class 2 contributions count towards your qualifying years for State Pension, Maternity Allowance, and certain other benefits. Class 4 NICs are calculated on your self-employed profits above a threshold. In 2026/27, you pay 9% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Unlike Class 2, Class 4 does not count towards your State Pension qualifying years. Both are paid through your Self Assessment tax return alongside income tax. If you also have employment income, your total NICs may be capped. New self-employed people often forget to budget for National Insurance — it is separate from income tax and can add a significant amount to your tax bill. Use a self-employed take-home pay calculator to estimate your total tax and NI liability before setting your prices.

Keeping Records and Accounts

HMRC requires self-employed people to keep accurate records of all income and expenses for at least 5 years after the 31 January filing deadline. You need to record: all money received from customers (sales, invoices, tips, cash), all business expenses (receipts, invoices, bank statements), details of anything you have bought and sold as part of your business, and records of any personal money used in the business. You can keep records on spreadsheets, using accounting software (such as QuickBooks, Xero, FreeAgent, or Sage), or in a simple notebook. HMRC now requires Making Tax Digital (MTD) for Income Tax from April 2026 for self-employed people with business profits over £50,000. This means you must use compatible software to keep digital records and send quarterly updates to HMRC. For those with profits under £50,000, MTD is optional but will become mandatory in future years. Good record keeping makes filling in your Self Assessment return much easier and helps you claim all the deductions you are entitled to. Keep receipts and invoices electronically — a simple folder on your phone or cloud storage is enough. Separate your business and personal finances by opening a dedicated business bank account, though it is not a legal requirement for sole traders.

What Expenses You Can Claim

You can claim allowable business expenses that are incurred wholly and exclusively for your self-employment. Common expenses include: office costs (stationery, printer ink, postage, phone bills — apportioned for business use); travel costs (mileage at 45p per mile for cars and vans for the first 10,000 miles, then 25p per mile — also train, bus, and air fares); clothing (uniforms, protective gear, costumes — not everyday clothing); staff costs (salaries, pensions, employer NICs for employees); premises costs (rent, rates, utilities, business rates — if you use your home, you can claim a flat rate of £6–£26 per month using HMRC's simplified expenses); professional fees (accountant, solicitor, insurance); advertising and marketing (website costs, SEO, Google Ads, printed materials); training courses (directly related to your current business — not retraining for a new career); and subscriptions (trade journals, professional memberships). Capital allowances let you deduct the cost of assets like computers, tools, and office furniture, up to £1 million per year using the Annual Investment Allowance (AIA). Do not claim personal or dual-purpose expenses. HMRC scrutinises inflated claims — keep receipts and be prepared to justify every deduction.

Completing Your Self Assessment Tax Return

As a self-employed person, you must file a Self Assessment tax return every year. The key deadlines are: register by 5 October in your second tax year (or within 3 months of starting if earlier), paper returns by 31 October, and online returns by 31 January following the end of the tax year. The tax year runs from 6 April to 5 April. For 2025/26, the online filing deadline is 31 January 2027. Your tax return asks about your self-employment income and expenses, plus any other income (employment, dividends, rental income, savings interest). You calculate your profit as income minus allowable expenses. HMRC then calculates the tax and National Insurance due. You pay income tax (starting at 20% on profits above the personal allowance of £12,570), plus Class 4 and Class 2 NICs. Tax and NICs are usually due by 31 January following the end of the tax year. You also make Payments on Account on 31 January and 31 July if your tax bill exceeds £1,000 — these are advance payments towards your next year's tax bill. See our Self Assessment Deadline guide → for full details on filing and payment.

VAT Registration (When and How)

You must register for VAT if your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period (the threshold for 2026/27). You can also register voluntarily if your turnover is below the threshold. Registration is done online through the HMRC website — you will receive a VAT registration number within 30 days. Once registered, you must charge 20% VAT on most goods and services (or 5% for reduced-rate items, 0% for zero-rated). You submit VAT returns every 1, 3, or 12 months (quarterly is standard) and pay HMRC the VAT you have collected, minus the VAT you have paid on business purchases. Most businesses now use Making Tax Digital (MTD) for VAT — you must use compatible software to submit returns digitally. There are several VAT schemes: Flat Rate Scheme (pay a fixed percentage of turnover instead of calculating input and output VAT — good for small businesses), Cash Accounting Scheme (pay VAT on payment received rather than invoices issued), and Annual Accounting Scheme (one return per year with monthly instalments). If you sell mainly to consumers (B2C), VAT registration may eat into your margins. If you sell to businesses (B2B), being VAT-registered may be advantageous as clients can reclaim the VAT you charge. Speak to your accountant about the best VAT scheme for your business.

FAQs

Do I need a business bank account as a sole trader?

No, it is not a legal requirement. However, a separate business bank account makes record keeping much easier and helps demonstrate to HMRC that you are genuinely self-employed. Many sole traders use a second current account with their existing bank.

Can I claim expenses for working from home?

Yes. You can claim a proportion of your home costs (heating, electricity, internet, council tax) based on the number of rooms and hours used for business. HMRC's simplified expenses method allows a flat rate of £6–£26 per month depending on hours worked.

What happens if I do not register as self-employed?

If HMRC discovers you are self-employed but have not registered, you may face penalties, interest on unpaid tax, and a backdated tax bill. HMRC uses data-sharing with banks, online platforms, and other government departments to identify unregistered traders.

When do I pay tax as a self-employed person?

Income tax and National Insurance are due by 31 January after the end of the tax year. You may also need to make Payments on Account on 31 January and 31 July if your tax bill exceeds £1,000. Budget for your first tax bill carefully — it can be a shock.

Can I change from sole trader to limited company later?

Yes. Many businesses start as sole traders and incorporate later. You must notify HMRC when you stop self-employment and file a final tax return. Trading through a limited company has different tax rules, reporting requirements, and administrative costs.