Self-employment tax: what to know

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Self-employed individuals are also known as sole traders. This means the self-employed person does business on his own and does not answer to any boss. Continue reading to discover more about this.

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Answer Adeosun
Jun 6, 22 · 4 min read
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As a self-employed person, you can either go solo or employ other people to work with you. However, the fact that you are working for yourself does not mean you do not get to pay tax. Every money you make (profits) trading in the UK must be taxed. Payment of tax for the self-employed is quite straightforward and can be done by oneself. 

Keep reading this article to find out more about the self-employment tax.

What is self-employment-tax?

The self-employment tax in the UK is also known as the Self-Assessment tax. Any person that is earning at least £1000 in taxable income must mandatorily register for Self-Assessment with the HM Revenue and Customs (HMRC) to file tax return.

When registering for Self-Assessment, you are required to input every required information about you and your business accurately. This is to ensure you are accurately taxed and failure to do this may result in tax evasion which could attract penalties or even jail time.

Who must pay self-employment tax?

You must know that all sole traders and business partnerships are required to pay the self-employment tax. When we talk about sole traders, it includes freelancers (online or physically), handymen, small businesses, artisans, contractors, etc.

On the other hand, business partnership can be a business with two or more persons who have come together to do business.

Each partner is required to pay tax via the Self-Assessment form available on the HMRC website.

When is self-employment income tax payment due?

Legally, the self-employment tax is due by the 31st of January of the relevant tax year. For example, the tax for the year 2022 is due by January 31st, 2023.

However, all necessary accounting documents must be kept for at least 5 years after the relevant tax year before they are being disposed of. This is to ensure that they are handy for inspection if and when the HMRC officials come calling to verify you have accurately declared your accounts.

How can I calculate self-employment tax?

The rates of tax returns to be filed for self-employment differ by how much you earn in profit over the Personal Allowance of £12,570. It is important to mention that if your profit is below the personal allowance, you do not have to file any tax returns.

You will have to pay 20% of your profits as tax if it is between £12,571 and £50,270, 40% when it is between £50,271 and £150,000, and 45% when it is higher.

Alternatively, you can use the tax calculator via the HMRC’s website to calculate the amount you are due to pay.

Why must I pay self-employment tax return?

It is important to know that you are not required to pay self-employment tax unless you have begun to earn up to £1000 or more as yearly income. However, it is possible to voluntarily register for Self-Assessment in order to be eligible for some benefits.

Here are some reasons why it is important to pay self-employment tax.

  • Avoid being penalized for tax evasion.
  • Be eligible for Class 2 National Insurance Scheme contributions benefits.
  • You will be able to set up tax-free child care when you present a proof of self-employment with your tax payment.
  • You can register to pay VAT even if your income is below the £85,000 required threshold. This enables you to charge and earn back the VAT payments from your clients.
  • You will be eligible to get social security benefits such as state pension and maternity allowance from the government if and when you qualify.


Tax payment is an important duty of every citizen of any country since this is the major way by which the government generates revenue. This does not exclude the self-employed as they constitute the bulk of the workforce of the country.

How to pay self-employment tax?

Follow these steps:
HowTo step image

1. Register for Self-Assessment with the following information handy

Name, postal address, telephone number, email address, NI number (National Insurance number – you can apply for it if you don’t have one already), business name, business start date, business description (SIC code).

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