Freelancing gives you control over your work, but it also means HMRC no longer handles your tax automatically. You are responsible for registering, calculating, and paying your own tax. This guide covers everything a UK freelancer needs to know for 2025-26.
Step one: register for Self Assessment
You must register with HMRC as self-employed by 5 October following the end of your first tax year of freelancing. If you started freelancing in 2024-25 (ending 5 April 2025), the registration deadline was 5 October 2025. You register online at gov.uk/register-for-self-assessment.
What taxes do freelancers pay?
As a freelancer (sole trader), this is what applies to your profits:
- Income Tax: on profits above the Personal Allowance (£12,570 in 2025-26), at 20%, 40%, or 45%
- Class 4 National Insurance: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270
- Class 2 National Insurance: nothing to pay since April 2024 if profits are at or above the Small Profits Threshold (£6,845 in 2025-26), as contributions are treated as paid. Below that threshold you can pay voluntarily at £3.50 per week (£182 per year) to protect your State Pension
Example: £40,000 freelance profit (2025-26)
| Tax / NI | Calculation | Amount |
|---|---|---|
| Income Tax | 20% of (£40,000 - £12,570) | ~£5,486 |
| Class 4 NI | 6% of (£40,000 - £12,570) | ~£1,646 |
| Class 2 NI | Treated as paid (profits above £6,845) | £0 |
| Total tax | ~£7,132 |
Payment on account: paying next year's tax in advance
Once your Self Assessment tax bill exceeds £1,000, HMRC requires you to make payments on account, advance payments toward the following year's tax bill. These are:
- First payment on account: 31 January (50% of last year's bill)
- Second payment on account: 31 July (another 50%)
- Balancing payment: 31 January the following year (any remaining balance)
This means in your second year of freelancing, you effectively pay up to 150% of your first year's bill in a single January. Many freelancers are caught out by this, set aside tax regularly from day one.
Allowable expenses
You can deduct business expenses from your income before calculating profit. Common allowable expenses include:
- Equipment, computers, and software used for work
- Professional subscriptions and training
- Accountancy and bookkeeping fees
- Business travel (not commuting)
- Home office costs (HMRC simplified rate: £10/month for 25-50 hours/month worked at home)
- Marketing and advertising
IR35 and off-payroll working
If you work through a limited company (rather than as a sole trader), the IR35 off-payroll working rules may apply. If your working relationship resembles employment, regular hours, a single dominant client, equipment provided by the client, your income may be treated as employment income for tax purposes. Private sector clients (medium and large businesses) determine IR35 status since April 2021.
Frequently asked questions
Do I need to charge VAT?
You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12-month period. Below this threshold, registration is voluntary, though it can be beneficial if your clients are VAT-registered businesses.
Can I use the trading allowance instead of deducting expenses?
Yes. If your gross trading income is £1,000 or less, it is completely tax-free under the trading allowance. If it exceeds £1,000, you can choose to deduct either your actual expenses or the £1,000 allowance, whichever is lower will never be worthwhile, so compare them.