Self Assessment for Self-Employed

Self-employed individuals in the UK must report their business income and expenses to HMRC each year using the Self Assessment system. The return is filed on form SA100 (main return) plus supplementary pages SA103S (short) or SA103F (full), depending on the complexity of the business. Understanding how to complete the return correctly is essential for paying the right amount of tax and avoiding penalties.

SA103S Versus SA103F

The short SA103S form is for sole traders with straightforward affairs: turnover below the VAT threshold, limited expenses, and no adjustments for private use of business assets. The full SA103F form is required for businesses with higher turnover, capital allowances, stock adjustments, or more complex expense categories. Most new self-employed people can use the SA103S, but it is worth checking the criteria each year as your business grows.

Turnover and Expenses

On the Self Assessment return, you report your gross turnover (total sales or fees before any deductions) and your allowable business expenses. The difference is your taxable profit. Allowable expenses include costs incurred "wholly and exclusively" for business purposes — such as office costs, travel, professional fees, and staff costs. Capital expenditure on equipment is handled separately through capital allowances. Keeping accurate records throughout the year makes completing the return much simpler.

Class 4 National Insurance

Self-employed individuals with profits above the Lower Profits Limit (£12,570 for 2025–26) pay Class 4 NIC at 9% on profits between £12,570 and £50,270, and at 2% on profits above £50,270. Class 4 is calculated on the Self Assessment return and collected alongside Income Tax. Unlike Class 2 NIC, Class 4 does not count towards the State Pension — it contributes to the Treasury's general revenue.

Payments on Account

If your total tax bill (including Class 4 NIC and student loan repayments) exceeds £1,000, HMRC requires you to make payments on account towards the following year's liability. These are two instalments, each equal to 50% of the previous year's tax bill, due on 31 January and 31 July. A balancing payment for any remaining amount is due by 31 January following the end of the tax year. Payments on account can be reduced if you know your income will be lower, but interest applies if you reduce them excessively.

Example Tax Calculation

Consider a sole trader with turnover of £60,000 and allowable expenses of £15,000 in 2025–26. Taxable profit is £45,000. Income Tax: £12,570 personal allowance (0%) = £0; £32,430 at 20% = £6,486. Class 4 NIC: (£45,000 - £12,570) = £32,430 at 9% = £2,918.70. Class 2 NIC: £3.45 × 52 = £179.40. Total tax and NIC = £9,584.10. Payments on account for 2026–27 would be £4,792.05 each (assuming Class 2 is still payable).