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Self-employed tax and National Insurance

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.

Register with HM Revenue and Customs (HMRC)

It's important to let HMRC 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 them as soon as you begin self-employment you may have to pay an initial penalty.

You can register:

Income Tax and Self Assessment

Once you're registered as self-employed, you'll receive a Self Assessment tax return to complete each year so that you can provide details of your earnings and any other income you get during the tax year (6 April to 5 April). This information is used to work out how much tax you have to pay.

You can find out more about Income Tax, tax return deadlines and the benefits of filing your tax return online by following the links below.

National Insurance Contributions

You normally have to pay Class 2 National Insurance contributions and if your annual profits are over a certain amount you also pay Class 4 contributions.

Class 2 National Insurance Contributions

You pay Class 2 National Insurance contributions at a flat rate of £2.40 a week if your earnings are above £5,075 per year (2010-11).

Class 2 National Insurance contributions count towards certain benefits, like the basic State Pension, Maternity Leave and Bereavement Benefit. But they 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 - find out how to do this in the section ‘Register with HM Revenue & Customs’. Once registered, you can choose to make your payments either monthly Direct Debit or quarterly bill - find out more by following the first link below.

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.

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 8 per cent on annual profits between £5,715 and £43,875 (2010-11) and 1 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.

Value Added Tax (VAT)

If your business turnover is more than the VAT threshold (currently £68,000) you will 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 HMRC's VAT Helpline on 0845 0109 000 - open from 8.00 am to 6.00 pm Monday to Friday.

Read the guides below to find out more.

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.

More useful links

See also...

 

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