Self-employment in the UK: How to become self-employed and what taxes you have to pay

Self-employment is an opportunity to legalise your earnings and not have to worry about claims from the tax authorities. As of 2022, around 13% of all workers in the UK are registered as self-employed. This status gives flexibility and independence, but it also carries certain risks that should not be overlooked.

Being self-employed means working for yourself and not depending on your employer to pay your salary. For some people this status allows them to work freelance, for others it helps to run their own small business or work with a company on a contract basis.

This status is also necessary if you want to properly formalise your passive income: dividends from investments or income from renting out property. It also helps you to legalise money earned outside the UK. All you need to do is register with HM Revenue & Customs and file an annual tax return.

Here you will find what you need to know before you start working as a self-employed person, how to obtain this status, and, most importantly, what taxes you will have to pay.

What types of self-employment exist in the UK?

Sole trader is the simplest and most popular form of self-employment, where you run your own business individually. In this case, you keep all the profits after taxes, but you are also personally liable for any debts that may arise. This type of self-employment is the focus of this article.

But you should understand that there are other, more complex forms of self-employment such as Partnership or Limited Company. These offer greater protection but also impose additional obligations and regulations that you will have to fulfil. We recommend that you research the different types of self-employment before starting a business and choose the form that best suits you.

It is also worth noting that the same person can be employed, working for a company during the day, and at the same time be self-employed. In this case, self-employment will help to formalise part-time work or additional services that can be provided even to the main employer.

Can a non-UK resident become self-employed? What types of visas allow you to work as self-employed?

Anyone who has permission to live and work in the UK can register as self-employed. It includes holders of most categories of UK visas. Among them Start-up Visa, Innovator Visa, Global Talent Visa. The exceptions are tourist visas, short term students and parents whose child study in the UK.

A separate case is the Skilled Worker visa, which requires an official invitation from a UK company with a sponsor licence. This visa assumes that your main place of work will be with the company that invited you. However, this visa allows you to take on part-time work, which you can also do as a self-employed person. However, the part-time work cannot exceed 20 hours per week and must be in the same speciality as your main place of employment.

How do I become self-employed in the UK?

The first step is to notify HM Revenue and Customs of your change of status. To do this, register to file a tax return using the Self-assessment tax form. If you do not have an employer who pays National insurance contributions for you, you will also need to register for Class 2 National Insurance. You can do this in your personal account on the gov.uk website or by post using a special form. HM Revenue & Customs will give you a unique taxpayer number (UTR), which you will need when filing tax returns and paying tax.

You must register within 30 days after starting your business in your new capacity.

How do you pay tax if you are self-employed in the UK?

1. Submit tax returns annually

   Self-employed people in the UK file a Self-assessment tax return. To do this, you will need to keep careful records of all the income and costs from your business. Until 31 January each year you have to complete and submit a tax return for the previous tax year. You can do this online at gov.uk.
   The UK tax year runs from 6 April to 5 April the following year. Therefore, until 31 January 2025 you have to declare your income for the period from 6 April 2023 to 5 April 2024.
   If you miss the deadline for submitting your tax return, HM Revenue & Customs will charge you a penalty of £100. If the tax return is not submitted even 3 months after the deadline, the penalty will be increased.

2. Pay income tax

   The UK has a progressive taxation system. Therefore, the amount of tax you pay will depend on the amount of your income you earned in the tax year. Income less than £12,570 is a Personal tax allowance and is not taxable. However, if your income exceeds £100,000, the amount of the primary tax allowance will be reduced by £1 for every £2 of income over £100,000.

   Tax scale in England, Wales and Northern Ireland

   Profit, £	Tax rate
   Less than 12,570	0%
   12,571 to 50,270	20%
   50,271 to 125,140	40%
   Over 125,140	45%

   Scotland has a slightly different tax scale to the rest of the United Kingdom.

   Tax scale in Scotland

   Profit, £	Tax rate
   12,571 to 14,876.	19%
   14,877 to 26,561.	20%
   26,562 to 43,662.	21%
   From 43,663 to 75,000	42%
   75,001 to 125,140	45%
   Over 125,140	48%

   The deadline for paying taxes is 31 January, as is the deadline for filing tax returns.

3.  Pay National Insurance contributions

   The self-employed in the UK also pay National Insurance contributions. Contributions are compulsory if your earnings exceed £12,570 a year.
   For income between £12,570 and £50,270 the National Insurance contribution rate is 6%. For income over £50,270 you will have to pay 2%.
   If bureaucratic intricacies frighten you, and the idea that you need to understand the intricacies of the legislation makes you depressed, think about engaging specialists. Qualified lawyers can help you in preparing and filing tax returns, paying taxes and resolving many other issues.