Self-employed tax explained: what you owe HMRC in 2026/27

Going self-employed is straightforward until the first tax bill arrives. This guide covers everything you need to know about registering, what you'll pay, when you'll pay it, and how to avoid the mistakes that cost new freelancers money.

Registering with HMRC

You must register as self-employed with HMRC within 3 months of starting self-employment. "Starting" means the date you first did work or started marketing your services, not the date you received your first payment.

Registration is free and done online through gov.uk. You'll create a Government Gateway account if you don't already have one. Within 10 working days (21 days if you're abroad), HMRC will post you a Unique Taxpayer Reference (UTR) number. You need this to file your tax return.

If you register late, HMRC can charge a penalty of £100 per quarter of delay. In practice, they rarely enforce this for short delays, but it's not worth the risk.

Tax return deadlines

The tax year runs from 6 April to 5 April. For the 2026/27 tax year (6 April 2026 to 5 April 2027), your deadlines are:

Paper return: 31 October 2027
Online return: 31 January 2028
Payment of tax owed: 31 January 2028
Second payment on account: 31 July 2028

Miss the 31 January deadline and you'll get an automatic £100 penalty, even if you owe nothing. After 3 months late, HMRC charges £10 per day (up to £900). After 6 months, a further 5% of tax owed or £300 (whichever is higher). After 12 months, another 5% or £300.

Late payment also triggers interest charges (currently 7.5% per year) and a 5% surcharge after 30 days, another 5% after 6 months, and another 5% after 12 months. These stack up fast.

What taxes you'll pay

Self-employed people pay three things: Income Tax, Class 2 National Insurance, and Class 4 National Insurance. Here's how each works for 2026/27:

Income Tax

Applied to your taxable profit (income minus allowable expenses). You get a personal allowance of £12,570 tax-free. After that:

20% on profits between £12,571 and £50,270
40% on profits between £50,271 and £125,140
45% on profits over £125,140

Class 2 National Insurance

A flat rate of £3.45 per week (£179.40 per year) if your profits are above £6,725. This is cheap and important: it gives you qualifying years for state pension and access to certain benefits. Even if you could technically avoid it, paying Class 2 is almost always worthwhile for the state pension credit.

Class 4 National Insurance

This is calculated as a percentage of your profits:

9% on profits between £12,570 and £50,270
2% on profits above £50,270

Unlike Class 2, Class 4 NI doesn't give you any benefit entitlements. It's just a tax by another name.

Allowable expenses: the complete list

Everything you spend "wholly and exclusively" for business can be deducted from your income before tax is calculated. Here are the main categories:

Office and premises: rent (or proportion of home costs), business rates, utilities (business proportion), office furniture, repairs and maintenance.

Travel: fuel and mileage to client sites (45p/mile for first 10,000, then 25p), train and bus fares, parking, hotel accommodation for business trips, subsistence on overnight stays (reasonable meals only).

Equipment and technology: computers, phones, printers, software subscriptions, web hosting, domain names, camera equipment (if relevant to your work).

Professional costs: accountancy fees, legal fees, professional indemnity insurance, professional body memberships (RICS, CIMA, etc.), CPD and training directly related to current work.

Marketing: website design and hosting, business cards, advertising, networking event entry fees.

Financial: bank charges on a business account, credit card interest on business purchases, bad debts (invoices you can't collect).

Home office: two methods

If you work from home, you can claim a portion of your household costs. There are two approaches:

The simplified method gives you a flat rate based on hours worked at home per month: £10/month for 25-50 hours, £18/month for 51-100 hours, £26/month for 101+ hours. Simple, but usually gives a smaller deduction.

The actual cost method requires you to calculate the business proportion of your actual costs (rent/mortgage interest, council tax, electricity, gas, water, broadband). If you use one room out of four primarily for work, you might claim 25% of these costs. This method is more complex but often gives a larger deduction, especially if you work from home full-time.

Record keeping requirements

You must keep records of all income and expenses for at least 5 years after the 31 January submission deadline. That means records for 2026/27 must be kept until at least 31 January 2034.

Records must include: all invoices you've issued, all receipts for business expenses, bank statements, mileage logs (if claiming travel), records of any goods bought for resale, and your annual accounts or calculation of profit.

You don't need to send these records to HMRC with your return. But if HMRC opens an enquiry (they randomly check around 5% of returns), you'll need to produce them within 30 days. Missing records can result in HMRC estimating your tax, usually unfavourably.

Making Tax Digital (MTD) from April 2026

MTD for Income Tax Self Assessment (MTD ITSA) becomes mandatory from April 2026 if your self-employed income exceeds £50,000. From April 2027, the threshold drops to £30,000. Below £30,000, there's no confirmed start date yet.

Under MTD, you must:

Keep digital records using MTD-compatible software (not spreadsheets)
Submit quarterly updates to HMRC (by the 7th of the month after each quarter end)
Submit a final declaration by 31 January (replacing the current Self Assessment return)

Compatible software includes FreeAgent (from £19/month), Xero (from £15/month), QuickBooks (from £12/month), and HMRC's own free software (basic functionality only). You can't use Excel or Google Sheets, even with bridging software.

MTD doesn't change how much tax you owe. It changes how and when you report it. The quarterly updates give HMRC an in-year view of your income, which they may eventually use to collect tax more frequently (similar to PAYE).

Common mistakes that cost money

Not saving for tax

The number one mistake. If you earn £40,000 profit, you'll owe approximately £8,400 in tax plus a £4,200 payment on account. That's £12,600 due in January. If you haven't been setting money aside monthly, you're in trouble. The standard advice: transfer 25-30% of every payment you receive into a separate savings account immediately.

Forgetting payments on account

New freelancers budget for the tax bill but forget that HMRC also wants 50% of next year's estimated tax upfront. Your first January bill is roughly 150% of one year's tax. After that, the system evens out because you're making advance payments each year. But year one is painful.

Missing expenses

People forget to claim legitimate expenses, especially small regular ones: phone bills, software subscriptions, professional memberships, home office costs, bank fees. At a marginal tax rate of 29% (20% IT + 9% Class 4), every £100 of unclaimed expenses costs you £29 in unnecessary tax.

Mixing personal and business

Using one bank account for everything makes record keeping a nightmare. Open a separate business account (Starling, Tide, and Mettle all offer free business accounts). Every business payment goes in and out of that account. Makes bookkeeping take 10 minutes instead of 2 hours each month.

Not registering for VAT at the right time

If your turnover (not profit) exceeds £90,000 in any rolling 12-month period (2026/27 threshold), you must register for VAT. If you don't, HMRC can backdate registration and demand the VAT you should have charged. Check your rolling 12-month total every month once you're above £70,000 turnover.

The trading allowance (£1,000)

If your total self-employed income is £1,000 or less in a tax year, you don't need to register or file a return. This covers occasional freelance work, selling crafts, or weekend tutoring. Once you pass £1,000, you must register.

You can also use the trading allowance as an alternative to claiming expenses. If your expenses are less than £1,000, you're better off just claiming the £1,000 trading allowance instead. But you can't claim both; it's one or the other.

Use our self-employed tax calculator to see exactly how much you'll owe based on your specific income and expenses.