Understanding self-employed tax payments

Reviewed by Ryan Carman, Head of Operations at RIFT Refunds.

You’ve gone self-employed. Congratulations. So many people will tell you that when they went self-employed they never looked back. You can do it too!

But being self-employed isn’t a walk in the park. You need to put in the hard graft to earn your income. And when that cash comes in, you can’t just spend it all. Unfortunately, you need to pay tax. But when do you need to make self-employed tax payments and how do you do it? Let’s take a look.

What are self-employed tax payments?

When you’re employed, the tax you pay is taken directly out of your pay packet every month. This is called Pay As You Earn (PAYE) and is sorted directly by your employer and HMRC, so you don’t need to worry about it.

When you’re self-employed, you pay the tax yourself as income tax through a self-assessment tax return. You only do this once a year, which means you need to hold onto some of your income to pay the taxman. So, don’t go wild and spend everything you earn.

Registering for self-assessment online

The first step is to register as self-employed with HMRC. It’s really simple to do online at the gov.uk site. If you haven’t used the system before, you need to be registered by the 5th October to pay tax the following January.

Once you’re registered as self-employed and set up with HMRC, you’ll get a Unique Tax Reference (UTR) number. You can’t submit a self-assessment tax return without one.

Newly self-employed: When and how to make payments

There are some very important dates to be aware of when you’re self-employed.

The first thing to understand is the tax year. Tax years run from 6th April to the 5th April the following year. Anything you earn before and up to 5th April is one tax year and anything after this is another tax year.

You need to complete a self-assessment tax return by 31st January for the tax year that ended in the previous April. So, if you earned anything as a self-employed individual in the tax year ending 5th April 2024, you’ll need to submit a tax return by 31st January 2025.

If you’re only just self-employed now and started earning from 6th April until 5th April 2025, you won’t need to submit a tax return until 31st January 2026.

But just because you can do it up until that point, it doesn’t mean you need to wait. Once the tax year has ended, you can submit your tax return to HMRC immediately. It makes sense to get it in early, so you’ll know in advance how much tax you have to pay.

Anything submitted after 31st January is subject to fines. You can be fined up to £100 for just a single day late and up to £900 for filing three months late.

You file your self-assessment tax return on the online HMRC portal, using an SA100 form. It can get complicated if you left your job during that tax year, as you’ll also need a P45 form.

Important tax dates

Calculating tax owed

You'll need to calculate how much tax you owe, based on the thresholds below:

There are a range of expenses you can deduct from your earnings before tax to reduce your tax bill. These include:

• Office costs: Stationary or phone bills.
• Training courses related to your business: For example, courses that help you improve skills and knowledge you currently use for your business or that keep you up to date with technology used in your industry.
• Advertising and marketing: Including website costs.
  You can also deduct mileage if you drive for work (not to work) and claim working from home expenses too.

You can also deduct mileage if you drive for work (not to work) and claim working from home expenses too.

Need help with your self-employed tax return?

Going self-employed is a huge step. But while you might be running most of your business by yourself, you’re not completely alone. When it comes to tax, it pays to have help in your corner. Working with a specialist accountant means you’ll never miss a deadline. Your tax calculations are done for you and you won’t miss out on any available deductions.

Get in touch with us today to find out more.