Tax and National Insurance when you're self-employed

When you’re self-employed, you’re responsible for paying tax and National Insurance on your income. It’s important to stay on top of all your records in order to work out how much you need to pay.

Work out your employment status

HMRC’s Employment Status Indicator will tell you whether you’re self-employed or employed. Scroll down for information on using it.

To work out how much tax and National Insurance you should pay, first you need to work out whether you’re employed or self-employed.

This is usually straightforward, but sometimes it’s a bit more complex – for example you could be employed in one job and at the same time self-employed in a different job.

The HM Revenue & Customs (HMRC) website has a tool called the Employment Status Indicator that will work out your employment status for you based on your answers to a series of questions.

It’s completely anonymous and won’t ask for your name or any other personal details.

Using the Employment Status Indicator

There are two pages to read before you get to the tool.

  1. On the first page, read the information and click “Access the ESI tool and further guidance”.
  2. On the second page, read the ‘Conditions of use’ section and if you agree, click “I accept the conditions of use – go to the ESI tool”.
  3. Answer the questions.

The tool uses some technical language, so when you answer the questions remember:

  • you are ‘the worker’
  • the person or company you work for is ‘the engager’
Use the Employment Status Indicator on the HMRC website.

Register with HMRC as self-employed

Did you know

To make sure you don’t miss any payments, it’s best to pay your National Insurance contributions by Direct Debit. Most people who are self-employed pay Class 2 national insurance contributions as part of their Self Assessment tax bill.

As soon as you become self employed you must tell HMRC.

The very latest you can register with HMRC is by 5 October after the end of the tax year for which you need to file a tax return.

The tax year runs from 6 April one year to 5 April the next. If you register too late you might be liable to penalties.

You can register online to pay taxes on the HMRC website, or by calling the HMRC Newly Self Employed Hotline on 0300 200 3504.

How much tax and National Insurance do I pay as self-employed?

If you’re self-employed, you will probably need to pay National Insurance contributions (NICs) as well as income tax.

This currently includes Class 2 NICs (a flat rate charge on the self employed) and Class 4 NICs (contributions based on profits made).

These contributions pay for benefits such as the:

  • New State Pension
  • Maternity Allowance
  • Bereavement Benefit.

If you don’t keep your contributions up to date, or your payments are late, it could make it more difficult to claim these benefits.

Plans to abolish Class 2 NICs contributions have been delayed by the government until April 2019.

Check whether you need to register for VAT

Some self-employed people also need to register for VAT. Others might benefit from registering voluntarily.

Find out if you need to register for VAT in this interactive guide from HMRC.

Keep good records

To work your tax out correctly you’ll need good records of the money that comes into and goes out of your business.

It will be much easier to fill in your tax return if you keep good records as you go along rather than trying to find all your invoices and receipts at the end of the year.

You can be fined for failing to keep records.

Your basic records must include:

  • all your sales and takings
  • all your purchases and expenses.

To work these out you should keep any paperwork or electronic documents relevant to your business, including:

  • cashbooks
  • invoices
  • mileage records
  • bank statements
  • receipts for purchases
  • your P60s if you are also employed.

Fill in a tax return every year and pay your tax on time

HMRC is offering guides, videos and live webinars to help people complete a Self Assessment tax return. Please visit this site to access the information and for webinar dates and times.

In April each year, HMRC will send you a letter telling you to complete a tax return online, or a paper tax return to fill in, for the tax year that has just ended.

There are different deadlines for completing your tax return and paying the tax you owe.

Tax return deadlines

  • Online tax return: 31 January after the end of the tax year.
  • Paper tax return: 31 October after the end of the tax year .

The tax year begins on 6 April and ends on the following 5 April.

Payment deadlines

  • 31 January is the payment deadline for the balance of what you owe for the previous tax year. Normally you will already have made two payments on account for that year. This is also the deadline for making your first payment on account for the current tax year.
  • 31 July is the deadline for your second payment on account for the current tax year. The nature of Self Assessment means that it can be several months before your tax is due. It’s good practice to make provision for any tax owed on an ongoing basis.
Not sure how much you’ll have to pay? Budget for your Self Assessment tax bill with HMRC’s Self-employed ready reckoner tool.
To speak to an advisor and access webinars about your self-assessment tax return visit HMRC Support.

Specialist debt advice if you’re self-employed

If you’re struggling with business or household debt, Business Debtline offers a free debt advice service to self-employed people and small businesses in England, Wales and Scotland.

Call Business Debtline on 0800 197 6026 (Monday to Friday, 9am to 8pm) or visit the Business Debtline websiteopens in new window.

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