Money guide

Self-employed tax: what to set aside, and what you can claim

Updated 3 August 2026 · 7 min read

The hardest part of working for yourself isn't the tax rates — it's that nobody takes the money before it hits your account. It's all yours until suddenly, in January, a chunk of it isn't. Here's how to stay ahead of it.

You're taxed on profit, not income

This is the thing employees find surprising. If you invoice £45,000 and spend £6,000 running the business, you're taxed on £39,000. That profit is then hit by two things:

Income tax — the same rates and Personal Allowance as everyone else.
Class 4 National Insurance — 6% on profits between £12,570 and £50,270, then 2% above that.

Class 2 National Insurance, which used to be a small weekly charge, was abolished as a mandatory payment back in April 2024 — so most sole traders no longer pay it.

A decent rule of thumb: put aside 25–30% of your profit if you're a basic-rate earner, and closer to 40% once profits push into the higher band. Move it the day you're paid, into a separate account you don't look at.

What you can actually claim

The test HMRC applies is that a cost must be wholly and exclusively for the business. That phrase does a lot of work. A laptop used only for work is fully claimable. A phone you also use to ring your mum is not — you claim the business-use proportion.

Commonly claimable:

Stock, materials and things you resell
Tools, equipment and software subscriptions
Business travel and mileage (not your commute to a regular workplace)
A proportion of phone and internet
Accountancy and professional fees, business insurance
Advertising, website costs, professional memberships
A proportion of home costs if you work from home — either a flat rate based on hours, or a fair share of actual bills

Commonly not claimable: ordinary clothing (even if you only wear it for work), client entertaining, fines, and your daily commute.

Work out your profit, tax and monthly set-aside →Add expenses with a business-use percentage and download a worksheet for your return.

The dates that matter

5 April — the tax year ends.
5 October — deadline to register for Self Assessment if it's your first year.
31 October — paper return deadline.
31 January — online return deadline, and the date your bill is due.

Payments on account: the January shock

This is what blindsides people in their second year. If your bill is over £1,000, HMRC also asks for an advance payment towards next year — half in January, half in July. So that first January you can end up paying your full bill plus half of it again. It isn't extra tax, it's early tax, but if you haven't budgeted for it, it feels identical to a disaster.

Keep records as you go

Not because HMRC will definitely ask, but because reconstructing a year of receipts in the last week of January is a specific kind of misery. A folder, a spreadsheet, or a simple app — anything you'll actually maintain beats a perfect system you abandon in March.

Written in plain English by mytakehome.money. General information, not financial advice — check anything important at gov.uk or with a qualified adviser.