Going out on your own is a massive achievement. You finally get to choose the work you do, set your own hours, and build something personal. But leaving a salaried job also means losing the safety net of PAYE, where your taxes are handled automatically. Now, the job of figuring out what you owe HMRC is entirely up to you.
The admin side of self-employment can feel overwhelming at first glance, but it’s actually pretty straightforward once you strip away the jargon.
Get Set Up with HMRC
Your first job is to officially let HM Revenue and Customs know you are trading. If you earn more than £1,000 from your new venture between 6 April and 5 April, you must register for Self Assessment. It is wise to sort this out as soon as you start working, though the strict deadline is 5 October in your second tax year. After registering, the postman will deliver a Unique Taxpayer Reference (UTR) number, which is essential for filing your returns later on.
The Importance of Paperwork
Staying on top of your numbers is the secret to a calm tax season. You need a clear record of every penny you earn and every penny you spend on the business.
Tracking your spending is vital because legitimate business costs reduce your overall profit. A lower profit figure means a lower tax bill. You can generally claim for things like office stationery, business travel, advertising, and insurance. If your office is the spare room or the kitchen table, you are also entitled to claim a fraction of your household utility bills.
What You Actually Pay
Self-employed workers contribute to the public purse through Income Tax and National Insurance.
Income Tax is charged on your profits, i.e., your total earnings minus those business expenses mentioned earlier. Everyone gets a Personal Allowance (currently £12,570), which is income you do not pay tax on. Earnings above that threshold are taxed at the Basic, Higher, or Additional rates, depending on your success.
National Insurance is separate. You will need to pay this if your profits hit specific levels. These payments are crucial as they build up your entitlement to the State Pension and other benefits.
Niche Tax Reliefs
It is worth noting that different roles have different rules. Some sectors benefit from generous tax breaks. For instance, carers receiving a fostering allowance benefit from a specific tax exemption called Qualifying Care Relief. This often means the income they receive for looking after a child is entirely tax-free. It is always smart to research if your specific trade has similar allowances.
Dates for the Diary
The UK tax year spans from 6 April to 5 April. You must file your online return and pay your bill by 31 January the following year. If you miss this cut-off, you will face an instant fine.
The smartest approach is to save roughly 25-30% of every invoice into a separate savings account. That way, when January rolls around, the money is ready and waiting, leaving you free to focus on growing your business.
By treating your taxes as an ongoing habit rather than a yearly panic, you can enjoy the freedom of self-employment without the financial stress.
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