As an employee, Income Tax and National Insurance (NI) are usually taken automatically from your wages (Pay-as-you-earn, or PAYE). When you are self-employed, however, you must pay your Income Tax and NI through Self Assessment.
If, in a given year, you were self-employed and your untaxed income was more than £2,500, you have to fill in a tax return.
Registering for Self Assessment
You must register for Self Assessment and Class 2 National Insurance immediately after starting your business, and by 5 October of your business’ second tax year at the latest. Failure to do so may incur penalties. You can register online to receive your 10-digit Unique Taxpayer Reference (UTR) and be enrolled in the Self Assessment online service at the same time.
Filling in your Self Assessment form
Keeping detailed records of your incomings and business expenses (bank statements, invoices, receipts, etc.) will be a big help in completing your tax return correctly. Some of the costs of running your company – office and travel costs, stock and raw materials, etc. – can be claimed as allowable expenses, which will reduce your tax burden overall.
You fill in your Self Assessment form after the end of the tax year it applies to, i.e. 5 April of the following year. You can either log into www.gov.uk and file an online form before the 31 January deadline, or a paper form before 31 October.
Paying your Self Assessment bill
HMRC will calculate the tax you owe based on the amount you report, and issue you with a Self Assessment bill to be paid by 31 January.
If you’ve never filed an online return, make sure to allow additional time to process your registration – at least 20 working days before the deadline. For more information, refer to the gov.uk section on Self Assessment Tax Returns .