Going freelance is exciting. The tax side? Less so. Unlike employment where your employer does everything through PAYE, as a freelancer you’re responsible for working out your own tax, paying it on time, and keeping proper records. The good news: with the right setup, it’s manageable. And because you can deduct business expenses, you often pay less tax than an employee earning the same gross income.
Registering as Self-Employed
You must register with HMRC by 5 October in the second tax year after you started. So if you went freelance in July 2025, register by 5 October 2026. But honestly, do it straight away. It takes 10 minutes, avoids any risk of penalties, and gets you your UTR (Unique Taxpayer Reference) number, which you’ll need for filing.
Register at gov.uk/register-for-self-assessment or call HMRC. UTR arrives within about 10 working days.
How You’re Taxed
Same income tax rates as everyone else:
- Personal Allowance: £12,570 tax-free
- Basic rate: 20% on taxable income up to £50,270
- Higher rate: 40% up to £125,140
- Additional rate: 45% above £125,140
The key difference: your taxable income is gross freelance income minus allowable business expenses. That’s where the advantage comes in. An employee on £40,000 can’t deduct their laptop, home office, or travel. You can.
National Insurance
Self-employed people pay two types of NI:
- Class 2: £3.45/week (collected through self-assessment, only if profits exceed £12,570). Qualifies you for State Pension.
- Class 4: 6% on profits between £12,570 and £50,270, then 2% above
Combined with income tax, the effective marginal rate for a basic-rate freelancer is 26% (20% + 6%). That’s actually lower than the employee rate of 28% (20% + 8%), though freelancers don’t get employer NI contributions.
The Trading Allowance
If your total freelance income is £1,000 or less, the trading allowance covers it entirely. No need to register or report. Above £1,000, you can either deduct the £1,000 as a flat allowance (instead of actual expenses) or deduct your real expenses. Not both.
The trading allowance is handy for side hustles alongside a full-time job. For full-time freelancers, actual expenses almost always give you a bigger deduction.
Common Expenses You Can Claim
This is where freelancing shines:
- Home office: £6/week flat rate (no receipts) or actual proportion of household costs
- Equipment: Laptop, phone, monitor, desk, chair. If used only for business, claim 100%. Mixed use? Claim the business proportion.
- Software: Adobe, Slack, accounting software, web hosting, domain names
- Professional development: Courses, books, conferences related to your existing skills
- Travel: 45p/mile or actual costs, train fares, parking for business journeys
- Professional indemnity insurance
- Accountancy fees
- Marketing: Website, business cards, advertising
Tips for Your First Tax Return
Open a separate business bank account from day one — even a free Starling or Monzo business account. Track expenses as they happen, not at 11pm on 30 January. Set aside 25–30% of every payment for tax. File early — you can submit from 6 April but still pay by 31 January. And consider FreeAgent for accounting — it’s free with many business bank accounts and genuinely makes self-assessment painless.
Estimate Your Tax Bill
Our free self-assessment calculator estimates your income tax, Class 2 and 4 NI, and student loan repayments based on your freelance profits. Plug your numbers in and see what’s coming.