Working for Yourself: Where to Start as a Self-Employed Person in the UK

To start working for yourself in the UK, you must register as self-employed with HMRC, keep records of all income and expenses, and file a Self Assessment tax return each year. The practical steps take less than a day to complete online, but the financial discipline they require is ongoing and non-negotiable.

How do you register as self-employed with HMRC?

Register online at gov.uk/register-for-self-assessment. You will need your National Insurance number and a Government Gateway account. HMRC will send you a Unique Taxpayer Reference (UTR) number by post within ten working days.

You must register by 5 October following the end of the tax year in which you started working for yourself. The UK tax year runs from 6 April to 5 April. If you started trading in June 2025, you must register by 5 October 2025.

Late registration carries a penalty, and HMRC can charge interest on any tax paid late. Register as soon as you start earning, even if your income is small.

What taxes do self-employed people pay in the UK?

Self-employed people pay Income Tax on profits above the personal allowance (£12,570 in 2025/26) and Class 4 National Insurance on profits above £12,570. Class 2 National Insurance was abolished from April 2024 for most self-employed people.

If your annual turnover exceeds £90,000, you must register for VAT. You will then charge VAT on your invoices and submit quarterly VAT returns to HMRC. Making Tax Digital (MTD) for VAT is now mandatory, which means you must use compatible software such as Xero, QuickBooks, or FreeAgent to file.

Do you need a separate business bank account?

You are not legally required to have one as a sole trader, but you should open one as soon as possible. Mixing personal and business finances makes it very difficult to calculate your profit accurately, which leads to errors on your tax return.

Most high-street banks including Barclays, NatWest, HSBC, and Lloyds offer small business current accounts, though many charge monthly fees. Digital alternatives such as Starling Business, Tide, and Monzo Business are free for basic accounts and are popular with sole traders and freelancers.

A business account also looks more professional to clients. You can use it to receive payments, set up direct debits for business expenses, and give your accountant read-only access to simplify bookkeeping.

What should a basic business plan include?

A business plan does not need to be long, but it must answer four questions: what are you selling, who will buy it, how much will they pay, and what will it cost you to deliver?

Work out a realistic monthly revenue figure by estimating how many clients or customers you can serve and at what price. Then subtract your costs (materials, software, travel, professional fees) to find your profit. Divide the annual profit by 12 and check it covers your personal living expenses plus your estimated tax bill.

If the numbers do not work on paper, they will not work in practice. The British Business Bank offers free business planning tools and templates at british-business-bank.co.uk.

How do you manage finances when you are self-employed?

Set aside a percentage of every payment you receive for tax from day one. A common rule of thumb is 25 to 30 per cent, though your actual liability will depend on your profit level. Put this money into a separate savings account and do not touch it until your tax bill arrives.

HMRC uses a system called Payment on Account for self-employed people whose tax bill exceeds £1,000. This requires you to pay two advance instalments toward the following year's tax bill on top of your current year's liability, which catches many first-year self-employed people off guard.

Track every business expense as you go. Allowable expenses reduce your taxable profit and include items such as business travel, equipment, professional subscriptions, and a proportion of home office costs. HMRC publishes a full list of allowable expenses for the self-employed at gov.uk.

What support is available for people starting out as self-employed?

The Government's Start Up Loans programme (administered through the British Business Bank) provides loans of £500 to £25,000 at a fixed interest rate of 6 per cent per year, along with free mentoring. Applications are open to UK residents aged 18 and over.

The Prince's Trust Enterprise Programme offers grants and support for people aged 18 to 30 who want to start a business. Citizens Advice provides free guidance on self-employment rights, benefits entitlements during paternity or maternity periods, and what happens to Universal Credit if you go self-employed.

If you are unsure about the tax side, a qualified accountant who specialises in self-employed clients is worth the cost. The Institute of Chartered Accountants in England and Wales (ICAEW) and the Association of Accounting Technicians (AAT) both maintain directories of qualified practitioners.

FAQ

When do you have to register as self-employed with HMRC?

You must register by 5 October in the second tax year of trading. For example, if you started earning self-employment income in July 2025, you must register by 5 October 2025. Registering immediately when you start is safer and avoids any risk of a late registration penalty.

Can you be employed and self-employed at the same time?

Yes. Many people run a self-employed business alongside their regular job. You pay tax on your employment income through PAYE as normal, and you file a Self Assessment return to declare your self-employment income separately. Both income sources are combined to calculate your total tax liability for the year.

What expenses can you claim as a self-employed person?

You can claim any expense that is "wholly and exclusively" for business use. Common allowable expenses include business travel (not commuting), equipment and tools, professional fees, software subscriptions, marketing costs, and a proportion of home costs if you work from home. HMRC allows a simplified flat-rate home working allowance of £10 per month for up to 25 hours of home working per month.

Do you need an accountant when self-employed?

You are not legally required to use one, but most self-employed people find an accountant saves them more in tax than it costs in fees. A good accountant will identify allowable expenses you have missed, handle your Self Assessment return, and give you advance warning of your tax bill. Expect to pay £200 to £500 per year for a sole trader's accounts, depending on complexity.

What happens to your benefits if you go self-employed?

This depends on your income. Universal Credit can be claimed while self-employed, but the DWP applies a minimum income floor (equivalent to the minimum wage for your reported hours) when calculating entitlement after a 12-month grace period. Your entitlement to Statutory Sick Pay ends when you leave employment; self-employed people should consider income protection insurance to cover loss of earnings through illness.

How do you pay yourself when self-employed as a sole trader?

As a sole trader, you do not pay yourself a salary. You simply draw money from your business account as you need it. There is no tax advantage to leaving money in the business, as HMRC taxes all profit regardless of whether you have withdrawn it. Keep enough in the business account to cover your upcoming tax bill and any planned business expenses.