Self-Employed Tax Guide for 2025/26

Registering as self-employed

You must register with HMRC as self-employed if you earn more than GBP 1,000 from self-employment in a tax year. Registration should happen by 5 October following the tax year in which you started trading.

Register online through the HMRC website. You will receive a Unique Taxpayer Reference (UTR) which you need for Self Assessment. Registration is free and takes about 10 minutes.

• Register by 5 October after your first tax year of trading
• You will receive a UTR within 10 working days
• Late registration can result in penalties
• You can register even if you also have employed income

Understanding your tax year

The UK tax year runs from 6 April to 5 April the following year. For 2025/26, the tax year starts 6 April 2025 and ends 5 April 2026. You report this income through Self Assessment, with returns due by 31 January 2027.

Most self-employed people use the tax year as their accounting period. You can choose a different year end, but basis period reform means profits are now taxed in the tax year they arise regardless of your accounting date.

Income tax rates and thresholds

Self-employed profits are taxed at the same rates as employment income. For 2025/26, the personal allowance remains GBP 12,570. This is the amount you can earn tax free.

Above the personal allowance, basic rate tax at 20 percent applies up to GBP 50,270. Higher rate at 40 percent covers income from GBP 50,271 to GBP 125,140. Additional rate at 45 percent applies above GBP 125,140. The personal allowance tapers for income over GBP 100,000.

• Personal allowance: GBP 12,570
• Basic rate (20 percent): GBP 12,571 to GBP 50,270
• Higher rate (40 percent): GBP 50,271 to GBP 125,140
• Additional rate (45 percent): Over GBP 125,140

National Insurance contributions

Self-employed individuals pay two types of National Insurance. Class 2 NIC is a flat weekly rate of GBP 3.45, though you only pay if profits exceed GBP 12,570. Class 4 NIC is charged on profits between GBP 12,570 and GBP 50,270 at 6 percent, then 2 percent above that.

National Insurance funds your state pension entitlement and certain benefits. Voluntary Class 2 payments can fill gaps in your NI record if profits are low.

Allowable business expenses

You can deduct legitimate business expenses from your income before calculating tax. The key test is whether the expense was incurred wholly and exclusively for business purposes.

Common allowable expenses include office costs, travel, stock and materials, staff costs, marketing, professional fees, and business insurance. You can also claim a proportion of home costs if you work from home.

• Office supplies, software, and equipment
• Business travel including mileage at 45p per mile
• Professional subscriptions and training
• Accountancy and legal fees
• Business insurance premiums
• Advertising and marketing costs

Working from home allowance

If you work from home, you can claim a proportion of household costs. HMRC accepts a flat rate of GBP 6 per week (GBP 312 per year) without evidence. Alternatively, calculate actual costs based on the rooms used and hours worked.

Claimable costs include rent or mortgage interest, council tax, utilities, broadband, and home insurance. Keep records of total household costs and your calculation method.

Capital allowances

Large purchases like vehicles, computers, and machinery qualify for capital allowances rather than immediate deduction. The Annual Investment Allowance lets you deduct up to GBP 1 million of qualifying expenditure in the year of purchase.

For cars, allowances depend on CO2 emissions. Low emission vehicles qualify for 100 percent first year allowances. Higher emission vehicles are written down at 6 percent per year.

Payments on account

If your tax bill exceeds GBP 1,000, HMRC requires payments on account. These are advance payments towards next year's tax, each equal to half your previous year's liability.

Payments on account are due on 31 January and 31 July. A balancing payment settles any difference when you file your return. You can apply to reduce payments on account if you expect lower profits.

• First payment on account: 31 January
• Second payment on account: 31 July
• Balancing payment: 31 January following year end
• Apply to reduce if income has dropped significantly

Self Assessment deadlines

For the 2025/26 tax year, paper returns must reach HMRC by 31 October 2026. Online returns and payments are due by 31 January 2027. Missing deadlines triggers automatic penalties starting at GBP 100.

Late payment also incurs interest charges. Setting aside money throughout the year helps avoid payment stress. We recommend saving 25 to 30 percent of profits for tax.

Record keeping requirements

HMRC requires you to keep business records for at least five years after the 31 January submission deadline. Records should include all sales and income, expenses and purchases, VAT records if registered, and PAYE records if you employ staff.

Digital record keeping through accounting software makes compliance easier and gives you real time visibility of your tax position. Cloud software also simplifies sharing information with your accountant.

Key takeaways

• Register as self-employed by 5 October after your first trading year
• Understand income tax bands and National Insurance classes
• Claim all allowable business expenses to reduce taxable profit
• Set aside 25 to 30 percent of profits for tax throughout the year
• Keep records for at least five years after submission
• File online returns by 31 January to avoid penalties

How we can help you

We specialise in:

• Self Assessment tax return preparation
• Bookkeeping and expense tracking
• Tax planning for sole traders
• HMRC registration support
• Year round tax advice

Need help with your self-employed taxes? K&R Accountants in Stoke-on-Trent offers fixed fee Self Assessment packages. Contact us for a free quote.