Tax

What is Self-Employed?

Being self-employed means you run your own business and are responsible for your own tax and National Insurance, rather than being paid through an employer's payroll. In the UK, you register with HMRC for Self Assessment.

Example

A freelance designer invoices clients directly, keeps her own records and files a Self Assessment return each year to pay income tax and National Insurance on her profits.

Key Dates

How Self-Employed Works in Practice

Self-employed is a tax status. It means you work for yourself rather than for an employer, and you take the risk and reward of running your own business. You find your own clients, set your own prices, and are not paid through someone else's payroll. HMRC treats your profits as self-employment income, which you report through Self Assessment.

Self-employed is not the same as sole trader. Sole trader is the business structure: you and the business are legally the same person. Self-employed is the tax status that comes with that. You can also be self-employed as a partner in a partnership. A director of your own limited company is different again: you are usually an employee of the company, paid through payroll or dividends, and the company is a separate legal entity with its own Corporation Tax return.

If you become self-employed you must register with HMRC. The deadline is 5 October after the end of the tax year in which you started trading. For example, if you started in the 2026/27 tax year, you must register by 5 October 2027. After registering you file a Self Assessment return each year and pay income tax on your profits.

You also pay National Insurance. Self-employed people normally pay Class 4 National Insurance on profits above a threshold, and Class 2 has been changed in recent years, so check current rules on gov.uk. You may also need to register for VAT once your turnover passes the threshold, and keep records to support what you report.

Step by Step

After you register, HMRC sends you a Unique Taxpayer Reference and activation details for your online account. Each year you record income and allowable expenses, work out your profit and report it on your Self Assessment return.

Tax is due by 31 January following the end of the tax year, and larger bills usually involve payments on account towards the following year. Setting money aside as you earn it stops the bill being a surprise.

If your business grows, you can stay self-employed as a sole trader or move to a limited company. The right choice depends on your profits, how you want to take money out and how much risk you want to carry personally.

Practical Tips

Register for Self Assessment as soon as you start trading rather than waiting for the deadline
Open a separate bank account for the business to keep records clean
Move a share of every payment into a tax savings pot
Review once a year whether a limited company would suit you better

Common Mistakes to Avoid

Starting to trade and forgetting to register with HMRC by 5 October after the tax year
Not setting aside money for the tax bill, then struggling to pay in January
Confusing self-employed status with being a limited company director
Failing to keep records of income and expenses to support the return

Frequently Asked Questions

What is the difference between self-employed and sole trader?

Sole trader is the legal structure of the business. Self-employed is your tax status. Most sole traders are self-employed and the terms are often used interchangeably, but they describe different things.

Am I self-employed if I run a limited company?

Usually not. As a director of your own limited company you are normally an employee of that company, and the company is a separate legal entity. You are taxed through payroll and dividends rather than as self-employed.

When do I need to register as self-employed?

By 5 October after the end of the tax year in which you started trading. Registering earlier is fine and avoids penalties.

Do I need to register for VAT when self-employed?

Only once your taxable turnover passes the VAT registration threshold, or if you choose to register voluntarily.

Source: https://www.gov.uk/working-for-yourself

Related Terms

Sole Trader

A sole trader is the simplest business structure - you and your business are legally the same. You keep all profits but have unlimited personal liability.

Self Assessment

Self Assessment is the system HMRC uses to collect Income Tax from people who don't have all their tax deducted at source (via PAYE).

Limited Company

A limited company is a business structure that's legally separate from its owners. Your personal assets are protected if the business fails.

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