Tax for the self-employed

If you're self-employed, you are responsible for paying your own tax and National Insurance contributions. You'll need to keep business records and details of your income so you can fill in an annual Self Assessment tax return. You may also need to register for VAT.

On this page:

Register with HM Revenue & Customs (HMRC)
Income Tax and Self Assessment
National Insurance contributions
Value Added Tax (VAT)
Record keeping
More useful links

Register with HM Revenue & Customs (HMRC)

It's important to let us know that you're self-employed as soon as possible - even if you already fill in a tax return each year. If you don't tell us within three months of the end of your first month in business you could face a penalty test.

You can register by:

calling the Newly Self-Employed Helpline on Tel 0845 915 4515 open from 8.00 am to 8.00 pm Monday to Friday and from 8.00 am to 4.00 pm at weekends
completing the form at the back of the leaflet: 'Thinking of working for yourself?'

More about setting up and registering as self-employed from Business Link (opens new window)

Read the guide SE1 'Thinking of working for yourself"

Income Tax and Self Assessment

Once you're registered as self-employed, you will be a Self Assessment taxpayer. You'll have to fill in a tax return each year and give details of your earnings and any other income you get. This information is used to work out how much tax you have to pay.

Find out more, including the benefits of filing your tax return online and key dates and deadlines, by reading the guides below.

Introduction to Self Assessment

Tax returns for the self-employed

Understanding and using Self Assessment online

National Insurance contributions

Class 2 National Insurance contributions

Class 2 National Insurance contributions count towards certain benefits, like State Pension, Maternity Leave and Bereavement Benefit.

You pay Class 2 National Insurance contributions at a flat rate of £2.40 a week (2009-10) if your earnings are above £5,075 per year. You can choose to make your payments either quarterly or by monthly direct debit.

Bear in mind that Class 2 National Insurance contributions do not count towards the additional State Pension, Statutory Sick Pay or Jobseeker's Allowance, so you might want to think about making other arrangements like a personal pension and income protection insurance.

You can register for Class 2 National Insurance contributions when you register as self-employed, or by completing the form at the back of the leaflet: 'Thinking of working for yourself?'

Read the leaflet 'Thinking of working for yourself?'

Exceptions to paying Class 2 National Insurance contributions

If you earn less than £5,075 per year you can apply for a certificate of small earnings exception and not pay Class 2 National Insurance contributions. However, you might decide to carry on paying them voluntarily to keep your entitlement to the State Pension and other benefits.

Small Earnings Exception help notes and claim form CF10

Class 4 National Insurance contributions

The amount of Class 4 National Insurance contributions you have to pay for any tax year is based on your profits for that year. You pay eight per cent on annual profits between £5,715 and £43,875 and one per cent on any profit over that amount.

You work out your Class 4 National Insurance contributions on your tax return and pay them alongside your Income Tax. Class 4 National Insurance contributions don't count towards benefit entitlements.

National Insurance rates and thresholds

Value Added Tax (VAT)

If your business turnover is more than the VAT threshold (currently £68,000) you'll normally have to register for VAT. Even if your turnover's below the threshold it might benefit your business to register voluntarily.

If you have an accountant they will be able to advise you or you can ring our National Advice Service Enquiry Line on Tel 0845 010 9000 open from 8.00 am to 8.00 pm, Monday to Friday.

Read the guides below to find out more.

When to register for VAT - interactive tool from Business Link (opens new window)

VAT - introduction to VAT: what is VAT, how VAT works and different rates

Record keeping

Legally you have to keep records for your business and for any other income you get. This is so you can fill in your tax return and show that the figures are right. You'll need to keep at least:

invoices for sales and purchases
receipts for business expenses
bank records

Good records will also save you time and help you run your business more efficiently.

Find out about Self Assessment record keeping

More about record keeping on the Business Link website (opens new window)