In the video below, we explain how to fill out a tax return as a self-employed person.
How do I pay tax as a self-employed person?
If you are self-employed, you’ll need to make a self-assessment tax return each year.
As you fill in your return, there are various expenses and allowances you should take into account to work out the income you’ll be taxed on (your taxable profits).
Broadly, taxable profits are your yearly takings, minus allowable business expenses, annual investment allowance, capital allowances and losses.
You can get a head start on your 2017-18 tax return with the Which? tax calculator. Tot up your tax bill, get tips on where to save and submit your return direct to HMRC with Which?.
This guide explains everything you need to know about the self-employment tax period, important payment dates to remember, and how payments on account work. You can jump to the section you want using the links below.
What is the self-employment tax period?
Your profits are worked out for an 'accounting period', which is usually 12 months.
The good news is that you can choose when your accounting year ends – and change your year-end date if you want to.
Choosing the right accounting period
Choosing a date early in the tax year (which runs from 6 April-5 April the following year) gives you more time to get your accounts made up, and the flexibility to time pension contributions to manage your tax bill.
Conversely, if your accounting year ends 31 March, for example, you have only a few days to check your accounts before the tax year ends.
So, how does this work. If you had selected an accounting year ending on 5 April, in the tax year 2018-19 you'll be taxed on profits for the year 6 April 2017 to 5 April 2018.
Watch out - you may face penalties if you do not declare profits from your business or fail to register for National Insurance or (if it applies to you) VAT within set time limits.
The safest course is to register your business as soon as possible. Call HMRC's helpline for the newly self-employed – 0845 915 4515.
How do self-employment tax payments work?
Self-employed tax payments: need to know
How the tax year works
Each tax year runs from 6 April to 5 April - so the 2017-2018 tax year covers profits made in your accounting year that ended between 6 April 2017 and 5 April 2018.
What profits you pay tax on
The profits you made in this period must be declared in your 2017-18 tax return. Deadlines for submission are 31 October 2018 for a paper return and 31 January 2019 for an online return.
When tax payments are due
Tax due must be paid by 31 January 2019. If you sent in your return by 31 October, HMRC will work out your tax for you.
When you file a tax return?
If you send in your return later, you must file it online, and the HMRC software will tell you how much tax is due (although it doesn't always take account of your most recent payment on account).
When you don't have to pay a tax bill
If you owe no more than £3,000 tax, are paid a salary or pension, and get your return in by 30 December, the tax can be collected in instalments during the coming year through PAYE.
What is payment on account?
After your first full year of business, as well as paying tax for the tax year that’s just ended, you are also required to pay tax for the current year in two instalments. These are known as 'payments on account.'
In this Q&A, we tell you everything you need to know about making 'payments on account'.
What are self-employed losses?
If you make a loss rather than a profit in any tax year, you can offset the loss by carrying it forward to deduct from any future profits you make from the same business.
Alternatively, you can use the loss immediately to reduce your income tax bill (and sometimes any capital gains tax bill) for either this or the previous tax year. Further options apply in the opening and closing years of your business venture. See HMRC helpsheet HS227 for more details.
How to pay your self-assessment tax bill
The time you need to allow to make your payment to HMRC depends on how you're choosing to pay.
Make sure the payment deadlines are in your diary - 31 January for any tax you owe for the previous tax year (AKA a balancing payment) and your first payment on account; 31 July for your second payment on account.
HMRC has outlined how long various forms of payment can take.
Same day or next day:
- Online or telephone banking
- Debit card online
- At your bank or building society
Three working days:
- Direct debit (if you've already set one up with HMRC)
- Cheque through the post
Five working days:
- Direct debit (if you haven't set one up with HMRC before)
If the payment deadline falls on a weekend or bank holiday, the payment needs to reach HMRC on the final working day beforehand. Late payments may result in a penalty.
You can no longer pay HMRC via credit card or at the Post Office.