In 2025, working as a self employed individual comes with a lot of perks. From being able to choose when and where you work to selecting the clients you want to do business with, self-employment offers a lot of autonomy and flexibility.
With these benefits, however, come self employed expenses that every freelancer, entrepreneur, or “solo-prenuer” needs to be aware of.
In this guide, we’ll have a close look at the self employed tax and all that it entails. This includes self employment income tax deductions, knowing how to calculate to estimate your tax liability, eligibility for tax refunds, and much more.
First, let’s have a look at critical deadlines that every self employed person in the UK needs to know about.
Important Deadlines
Under UK law, each self employed tax return has to be submitted by certain deadlines each year.
Should you opt to turn it in by paper, the deadline is by midnight on the 31st of October. When submitting an online form, on the other hand, this needs to be handed in by midnight on the 31st of January.
In cases where you’re submitting advance payments towards your tax bill, the deadline for these payments is on the 31st of July.
When navigating taxable income, it’s important to meet the applicable, aforementioned deadlines. Being late to file and/or submit can cause you to incur penalties. However, in unusual cases or events out of your control, you can generally submit an appeal to avoid paying penalties.
Starting a Business Mid-Year: Tax Implications in the UK
If you start a business in the middle of the year, it’s important that you understand the self employed expenses, namely those pertaining to taxes, that you’ll incur as a result.
Since April 6, 2023, the UK has mandated that each accounting year end should fall within the period of March 31 to April 5. However, starting a business mid-year could mean that your particular accounting year end arrives at a different time.
If that turns out to be the case, then UK law often requires the apportionment of your profits between accounting periods. In layman’s terms, this simply means your self employment tax return will need to be divided between more than one batch of accounts.
As you might imagine, when submitting your return to His Majesty’s Revenue and Customs (HMRC), earnings from self-employment need to be appropriately documented in accordance with each accounting year end.
If you find yourself running into any complications or facing questions during this time, you may find hiring a tax advisor or accountant to be beneficial. They can save you a lot of trouble, while also ensuring that you meet all your expenses.
How to Calculate Self-Employment Tax
In order to know what you owe in taxes, self employed pension contributions, and more, you first have to check your earnings from self employment through a self employment tax calculator. Thankfully, this isn’t as challenging as it may initially seem.
At this point in the guide, we’ll explore two key points for ascertaining what you owe in self employed tax.
Identifying Business Income Sources
Business income sources, also commonly referred to as revenue streams, are generally all liable for taxation in the UK. While certain forms of income may be eligible for various tax breaks, it’s still important to identify where your net earnings are coming from.
Common business income sources include the following:
- Sales of products/services
- Subscription fees
- Asset sales
- Rentals and leases
While income tax for self employed persons can vary, depending on a number of factors, identifying your business income sources is essential for completing your tax reform.
Self Employment Tax Deduction for Business Expenses
In the UK, deductible business expenses are commonly referred to as “allowable expenses.” These serve as self employment tax deductions that ultimately lower your bill.
As of 2025, the following expenses are recognized as allowables:
- Travel costs
- Office and staffing overhead
- Uniform/clothing costs
- Goods purchased to sell on
- Marketing and advertising fees
- Courses for training purposes
It’s also important to remember that using your tax-free, trading allowance of £1,000 prohibits you from claiming allowable expenses.
Tax Obligations for Self-Employed Individuals
So far, we’ve explored important tax deadlines, what happens when you start a business mid-year, and knowing what generates self employed expenses. Now we’ll have a closer look at the UK’s income tax rates for individuals, along with national insurance contributions and quarterly payments.
Income Tax Rates
The UK’s income tax rates fall into four separate categories:
| Categories | Descriptions |
|---|---|
| Personal Allowance | It equates to nontaxable income which starts at £0 before capping at £12,570. |
| Basic Rate Income Tax | It is income that garners a 20% tax rate. Income falling under this threshold starts at £12,571 and caps at £50,270. |
| Higher Rate Income Tax | It carries a 40% tax rate, starting at £50,271 and capping at £125,140. |
| Additional Rate Income Tax | The highest of all, comes with a 45% tax rate on any income greater than £125,140. |
National Insurance Contributions
In the UK, National Insurance contributions are funded by taxpayers and go towards the State Pension and other government benefits.
Persons paying self-employment income tax will owe National Insurance contributions if they’re at least 16 years of age and earning more than £12,570 per year. If your monetary net profits as a self employed individual exceed £6,725 per year, you could qualify for the State Pension and additional benefits.
When making these mandatory contributions, all of your self-employment net income tax payments can be tracked via your assigned National Insurance number.
Understanding Quarterly Payments: How to Pay Self Employment Tax
In the UK, quarterly tax payments are generally reserved for individuals with large businesses or corporations with profits of at least £150,000.
This is because of guidelines from the HMRC. People with these types of profits are viewed by the HMRC as capable of paying their tax dues upfront. As such, if your annual earnings from self employment meet or exceed the £150,000 threshold, you’ll need to submit a self employed tax form every quarter.
Due to the considerable time and extensive paperwork this involves, many business owners rely upon accountants and tax experts to assist with their quarterly dues.
Employment Status and Its Impact on Taxes
As you might have imagined from reviewing the UK’s income tax rates, your employment status has a pretty significant impact on what you’ll owe the government. Let’s have a closer look at what benchmarks require you to submit a self employed tax return and how self employment relates to your tax obligations.
Definitions and Criteria for Self-Employment
In the UK, you’ll owe self employed tax if you operate your own business and are responsible for its successes and/or losses. In order to meet the criteria for self employment tax, you also can’t receive payment via Pay As You Earn (PAYE), nor can you be assigned the responsibilities or rights of an employee.
Implications of Employment Status on Tax Obligations
The UK’s Check Employment Status for Tax (CEST) tool is great for ascertaining your employment status. You can also get a look at the HMRC self employed guidelines. Using CEST is a good idea if you have questions about your employment status, as understanding this is critical for properly meeting your tax obligations.
Tax Refund Eligibility
To pay self employment tax to the government, there are some circumstances in which you may qualify for a tax refund. This section of the guide will cover all the details you need to know, along with how to logistically claim a tax refund.
Eligibility Criteria
If you’ve paid too much tax to the UK government, you may be eligible for a refund, which is also known as a “rebate” or a “repayment.” Let’s say you accidentally pay more than you owe on personal allowance, basic rate or higher rate income tax. In this scenario, you’d qualify for a refund.
How to Claim a Tax Refund
- If you’re eligible for a tax refund, yet will owe additional tax within the next 45 days, the government typically subtracts your previous overpayment from the funds you’ll owe coming up.
- If you won’t owe any additional tax within the next 45 days, your tax refund generally gets applied to your online tax account. This may show as “pending,” which means your refund is processing, awaiting approval and payment from the government.
- If you’ve already claimed a tax refund and are still waiting on the money, you can directly contact HMRC to find out more information.
Practical Tips for Managing Tax Obligations
Whether you’re dealing with overhead expenses, self employed pension contributions, or other matters entirely, navigating self employment requires you to wear many hats. Thankfully, when it comes to managing your tax obligations, you can effectively streamline this and cut back on undue stress.
Some key ways of making this happen include keeping accurate records and putting aside money for taxes throughout the year.
Keeping Accurate Records
When you’re running your own business, having the right documentation on hand will prove to be quite helpful. This means keeping records of how much you’re making, any losses you’ve incurred, and which business income sources are generating profits.
You’ll also want documentation of any allowable expenses that you can write off to lower what you owe on a self employed tax return. Subcontractors/salary costs, phone bills, bank charges, and website expenses are just a fraction of allowable expenses you may qualify for.
Many people make the mistake of forgetting to keep a full account of accurate records. This can make things a lot more stressful during tax season and cause them to miss out on opportunities to lower their bills.
If you really want to cover your bases, letting an accountant or tax expert review your records before filing is a good idea. Having a professional in your corner provides an extra layer of security, while making sure you don’t miss out on any allowables or other important benefits. Thus, if something from your records is missing or doesn’t look right, an accountant or tax expert can catch it before you officially file with the government.
Setting Aside Money for Tax Payments
When it‘s time to submit a self employed tax form, the last thing you want to deal with is wondering how you’re going to pay the bill. It’s for this very reason that setting aside money for tax payments throughout the year is advisable. Generally, your annual profits will determine how much capital you should expect to pay self employment tax.
Individuals whose earnings from self employment is up to £50,000 each tax year should set aside at least 25% of what they’re making. For those earning up to £100,000, saving 40% just for taxes is a good idea. This increases to 45% for self employed individuals with annual profits of £100,000 to £150,000, while those earning more than £150,000 should devote at least 45% of their earnings towards taxes.
Taking this approach throughout the year makes everything a lot easier when tax season rolls around. It also spares you from having to pay the UK government penalties for being late on what you owe.
Final Thoughts on Self Employment Tax
Knowing when to complete your self employed tax return is one of the most important aspects of running your own business. Without being 100% clear on this, it’s easy to run into problems and wind up paying avoidable penalties to the UK government.
You need to know how much money you’re earning on an annual (or quarterly) basis. It’s also important to comprehend which earnings from self employment are profitable for your business and which rate you fall under as a self employed person.
Throughout this comprehensive guide, we’ve explored the ins and outs of income tax for self employed individuals. While doing so, we’ve been able to dive into the four key tax brackets, eligibility for tax refunds, and how to collectively manage your tax obligations.
If you’re a self employed person in the UK, feel free to use this guide to your advantage, whether you’re operating a small business or a large corporation that owes quarterly taxes.
If you know someone who owns a business (or is considering starting their own business) in the UK, feel free to pass this guide along to them as well. You never know when its contents may come in handy and prove helpful to navigating the UK’s detailed and nuances requirements for self employment.
FAQs on Self Employment Tax Return
Unlike employed individuals who pay tax on their total income, self-employed people just pay income tax on their profit.
To avoid the 40% tax rate in the UK as a self-employed individual, you can maximise allowable deductions, contribute to a pension, incorporate as a limited company, split income, and use tax-efficient investments like ISAs and SEIS/EIS.
The standard personal tax-free allowance equals £12,570 in a tax year.
As a self-employed, you don’t pay income tax up to £12,570. However, when your profits exceed that amount, you need to keep %20-25 to cover your income tax and bills.
As a sole trader, you don’t have to register self-employed if your income is £1000 or less in a tax year.
