Self-Employed for the First Time? The Tax Bit, Made Simple

So you’ve started earning money on your own, a bit of freelancing, a side hustle that’s taken off, selling online, offering a service. First of all, well done. But somewhere in the excitement, a quiet worry usually creeps in: what on earth do I do about tax?

Here’s the good news. It’s far less scary than it looks, and once someone explains it in plain English rather than official jargon, most of it makes simple sense. So let’s walk through it, no accountant-speak, just what you actually need to know when you’re starting out.

First question: do you even need to do anything?

There’s a handy freebie called the trading allowance. It means you can earn up to £1,000 a year from self-employment without having to tell HMRC or pay any tax on it. This is the total before you take any costs off.

So if your side thing brings in less than a grand a year, you can relax, there’s nothing you need to do. But the moment you go over £1,000, you need to register with HMRC and do a tax return. That’s not optional, but it’s also not the ordeal it sounds. More on that in a sec.

One thing worth knowing: occasional clear-outs, like selling your own old clothes or a car boot sale, don’t count. This is about money you’re earning from actually trading, freelancing, or providing a service on a regular basis.

Registering: less painful than it sounds

If you’ve gone over the £1,000, you register as a sole trader on the gov.uk website. It takes about twenty minutes, and you’ll need your National Insurance number. HMRC then posts you something called a UTR (a Unique Taxpayer Reference), a ten-digit number that’s basically your tax ID. Keep it somewhere safe, you’ll need it every time.

There’s a deadline for registering, and it catches people out, so here it is clearly. You need to register by 5 October following the end of the tax year you started in. The tax year runs from 6 April to 5 April. So if you started your side business in, say, August 2025, you’d need to register by 5 October 2026.

Honestly though, don’t wait for the deadline. There’s no downside to registering early, and it saves the last-minute panic.

The one date to tattoo on your brain: 31 January

This is the big one. Your tax return (called a Self Assessment) and any tax you owe are both due by 31 January each year. The return covers the previous tax year that ended the April before.

Miss it and you get an automatic £100 penalty straight away, even if you didn’t actually owe any tax. So it genuinely pays to be on time. And a tip that’ll save you a lot of stress: don’t leave it to January. Do it in the autumn if you can. The system’s quieter, and if there’s a problem you’ve got time to sort it.

How much tax will you actually pay?

Here’s the reassuring bit: you only pay tax on your profit, not everything you earned. Profit is simply what’s left after you take your business costs off your income.

And just like everyone else, you get a personal allowance (currently £12,570) that you can earn before any income tax kicks in at all. On top of income tax, self-employed people pay a bit of National Insurance (Class 4), which is 8% on profits between £12,570 and £50,270, and 2% on anything above that. It’s all worked out automatically when you fill in your return, so you don’t need to do the sums yourself.

The single best habit you can build from day one: set aside around 25 to 30% of what you earn in a separate pot for tax. Then the January bill never comes as a nasty shock, the money’s already waiting.

One heads-up for later: if your tax bill goes over £1,000, HMRC may ask you to make “payments on account”, which means paying towards next year’s bill in advance. It surprises a lot of people in their first proper year, so it’s worth knowing it’s coming rather than being blindsided.

The money-saver everyone should use: expenses

This is where a lot of people overpay, simply because they don’t realise what they’re allowed to knock off. Because you’re taxed on profit, every legitimate business cost you claim lowers the amount you pay tax on.

The rule is that a cost has to be “wholly and exclusively” for your business. Common things you can claim include:

• Equipment and tools you need for the work
• Business travel and mileage (45p a mile for the first 10,000 miles by car)
• A proportion of your phone and internet, based on business use
• Software, subscriptions and professional fees
• Marketing, a website, business cards
• Working from home costs

That last one is easy to get right. Rather than working out exactly what slice of your electricity bill counts, HMRC lets you use a simple flat rate for working from home: £10 a month if you work from home 25 to 50 hours, £18 for 51 to 100 hours, and £26 for 101 hours or more. No fiddly maths, no receipts to hunt down.

A quick word of caution the other way: only claim what’s genuinely for the business. If something is part personal and part business, like your phone, you only claim the business share. Claiming things you shouldn’t is what invites awkward questions from HMRC.

Keep it simple from day one

You don’t need fancy accounting software when you’re starting out, but a few simple habits will make your life enormously easier:

• Open a separate bank account just for your business money. It’s the single best thing you can do, it keeps everything clear and stops business and personal spending getting tangled.
• Save every receipt and invoice. A photo on your phone is fine. HMRC can ask to see your records, and you need to keep them for five years.
• Jot down income and costs as you go, even just a simple spreadsheet. Far less painful than digging through a year of bank statements the night before the deadline.

Did you know? A big change is rolling out, and it’s coming for more people every year

This is worth knowing even if it doesn’t affect you yet, because it’s heading everyone’s way. It’s called Making Tax Digital, and it changes how self-employed people report to HMRC. Instead of one tax return a year, affected people have to keep digital records and send HMRC an update every three months.

Here’s the key part, and the bit your instinct about it is right on: the income level that pulls you in keeps dropping every year.

• From April 2026 — it applies if you earn over £50,000
• From April 2027 — it drops to over £30,000
• From April 2028 — it drops again to over £20,000

And the government has said it wants to bring it to even lower earners after that. So while you might be well under the line today, there’s a fair chance it’ll reach you in a few years. Two things worth knowing: that income figure is your total before expenses, and it combines self-employment and any rental income together.

You don’t need to do anything about this now if you’re under the threshold. But it’s exactly why building those simple digital habits from the start, keeping records on your phone or a spreadsheet, is such a smart move. When it does eventually reach you, you’ll barely notice the change.

You’ve got this

Being self-employed and doing your own tax feels daunting the first time, but thousands of ordinary people manage it every year, and so will you. Register when you need to, keep it simple, put money aside as you go, claim what you’re allowed, and hit that 31 January deadline. Do those few things and the rest genuinely looks after itself.

And if you get stuck, HMRC has a free helpline, and they’re generally far friendlier than people expect. You don’t have to have it all figured out on day one.

This is general information to help you get started, not personal tax advice. If your situation is complicated or you’re unsure, it’s worth a quick chat with HMRC or an accountant.

— Emma