Self-Employed UK: Taxes, Accounting & Getting Started
Self-employment is more popular than ever in the UK. Whether you dream of running your own business, offering freelance services, or simply want more flexibility, becoming self-employed can bring both exciting opportunities and serious responsibilities.
If you’re considering making the switch – or have already started out – this practical guide will walk you through every step of self-employment in the UK.
Why Learning about Self-Employment Matters
With over 4.2 million people currently self-employed in the UK (ONS, 2023), it’s clear that working for yourself is a popular choice. Self-employment can offer:
Greater flexibility in when, where, and how you work
Control over your income and career direction
The chance to follow your passion and be your own boss
However, self-employment also means managing your own finances, taxes, and legal obligations. Getting off to the right start is crucial to avoid stress and costly mistakes down the line.
What Does Self-Employment Mean?
Self-employment simply means that you work for yourself, rather than being employed by someone else. In the UK, this usually includes:
Sole traders
Freelancers or contractors
Partners in a business partnership
Key Point: You are responsible for your own income tax and National Insurance contributions.
Step 1: Decide If Self-Employment Is Right for You
Before you jump in, take some time to consider if self-employment suits your lifestyle and personal finances.
Questions to ask yourself:
Do I have a marketable skill, product, or service?
Can I cope with uncertain income at times?
Am I organised enough to manage records and deadlines?
Am I comfortable working independently?
Tip: Try self-employment as a side project first if you’re unsure, while keeping your regular job.
Step 2: Registering as Self-Employed in the UK
You must register as self-employed with HM Revenue & Customs (HMRC) as soon as you start trading, even if it’s part-time.
How to register:
Go to the GOV.UK self-employment registration page.
Create a Government Gateway account if you don’t have one.
Fill in your details and get your Unique Taxpayer Reference (UTR).
Deadline: Register by the 5th October after the end of the tax year in which you started your business.
Reminder: Even if you already complete a Self Assessment tax return for other reasons, you should still let HMRC know you are now self-employed.
Step 3: Understanding Taxes and National Insurance
As a self-employed person in the UK, you are responsible for:
Income Tax on profits (after allowable expenses)
National Insurance contributions (NICs)
Filing your annual Self Assessment tax return
Income tax rates: You pay tax at standard UK rates on income above your personal allowance (£12,570 for 2023/24).
National Insurance:
Class 2 NICs: Small fixed weekly amount if your profits are above the small profits threshold (£6,725 for 2023/24).
Class 4 NICs: A percentage of profits if you earn more than £12,570 per year.
Useful resource: HMRC’s guide to self-employed tax and NICs
Step 4: Keeping Financial Records
Good record-keeping helps you claim tax deductions and keeps you out of trouble with HMRC.
What to keep:
Invoices and income receipts
Business-related expenses (receipts, bills)
Bank statements
Mileage logs (if you use a car for business)
Tip: Consider opening a separate bank account for your business, even if not required by law.
Recommended tools:
Paid: Simple accounting software like FreeAgent or QuickBooks
Step 5: Managing Cash Flow and Income
Without a regular paycheque, you’ll need to budget for:
Irregular income: Plan for lean months by setting aside cash in a separate savings account.
Big tax bills: Set aside about 20-30% of your profits for tax and NICs.
Late payments: Have clear payment terms, and don’t be afraid to chase late invoices.
Tip: Invoice promptly and politely, and consider accounting software that sends automated reminders.
Step 6: Claiming Allowable Expenses
You can deduct certain business expenses from your income to reduce your tax bill, such as:
Office costs (phone, stationery)
Travel costs (not your commute)
Staff or subcontractor costs
Professional fees (accountants, legal help)
Specific equipment and software
For home-based businesses: You may be able to claim a portion of household bills (utilities, internet). See HMRC’s simplified expenses checker for details.
Step 7: Consider Insurance and Pensions
Business insurance:
Depending on your work, you may need insurance such as:
Public liability insurance
Professional indemnity insurance
Employers’ liability insurance (if you employ others)
Pensions:
As a self-employed person, you are responsible for arranging your own pension. Consider options like a personal or self-invested personal pension (SIPP).
Learn more: The MoneyHelper guide for self-employed pensions
Step 8: Stay Compliant – Understand Your Legal Requirements
Depending on your industry, you may need:
Specific licences (e.g. food businesses)
Professional registrations (e.g. for accountants, therapists)
GDPR/data protection compliance (if you handle personal data)
Check your industry’s regulatory body and GOV.UK licences and regulations.
Step 9: Growing Your Business
Once you’ve settled into self-employment, you might want to:
Increase your rates: As your skills and reputation grow
Outsource tasks: Such as bookkeeping, design, admin
Market yourself: Through LinkedIn, social media, a website, or local networking
Register for VAT: If your turnover goes above £85,000 (2023/24 threshold)
Tip: Consider joining a local business network or the Federation of Small Businesses (FSB) for support and resources.
Step 10: Filing Your Self Assessment Tax Return
Each year, you must:
Complete your Self Assessment tax return by 31st January (following the tax year)
Pay any tax and NICs owed
Keep records for at least 5 years after the deadline
Read more: GOV.UK guide to filing your Self Assessment
Frequently Asked Questions
Q: Can I be both employed and self-employed?
A: Yes, it’s common to be both. You must pay tax on both forms of income and declare everything on your Self Assessment.
Q: What about sick pay, holiday pay, and maternity leave?
A: You won’t get statutory sick pay, holiday pay, or maternity leave as a self-employed worker, but you might qualify for Maternity Allowance.
Q: How do I register as a company instead?
A: If you want to set up a limited company (instead of working as a sole trader), the process is different. See GOV.UK: Set up a limited company for detailed info.
Key Takeaways and Next Steps
Self-employment in the UK offers flexibility, autonomy, and potential for rewards – but it brings responsibility. By:
Understanding your tax and legal obligations
Keeping good records
Planning for your financial future
…you can thrive on your self-employed journey.
