Self-employed
Running your own business for the 2026-27 tax year: what's tax-free, what National Insurance you actually owe, and what Making Tax Digital changes.
What it means
Trading profit — turnover less allowable expenses — is taxed as income through Self Assessment, alongside Class 4 and Class 2 National Insurance. There's no separate “self-employment tax”: it's the same Income Tax bands as everyone else, plus these two additional charges.
What you must do
- The £1,000trading allowance shelters small trading income completely — at or below it, there's nothing to declare and no tax to pay. Above it, claim the allowance or your actual expenses, never both.
- Class 4 National Insurance: 6% on profits between £12,570 and £50,270, 2% above that.
- Class 2 National Insurance: treated as paid — protecting your state pension record — once profits reach the £7,105 Small Profits Threshold. Below it, voluntary Class 2 is available at £3.65 a week.
- Digital records are required for every business item, but under £90,000 turnover you can consolidate expenses into one combined total instead of splitting them by category.
What you can safely skip
If your gross trading income is at or below the £1,000 trading allowance, you don't need to tell HMRC about it at all — no return, no records for that income. If you use the cash basis (the default), you also don't need to track debtors, creditors or depreciation — just money in and money out.
How to optimise: simplified expenses
Simplified expenses swap actual costs for a flat rate, so you don't need to keep every receipt:
- Mileage: 55p per mile for the first 10,000 business miles in a car or van, then 25p per mile after that (24p per mile for a motorcycle, no tiering). See our mileage tool to work it out.
- Working from home: flat monthly rates banded by hours worked — £10/month for 25–50 hours; £18/month for 51–100 hours; £26/month for 101+ hours.
- Living at your business premises: a flat monthly deduction from actual costs for your own personal use, banded by household size — £350/month for 1 people; £500/month for 2 people; £650/month for 3+ people.
The MTD timeline
Self-employment and UK property income together are what's measured for Making Tax Digital for Income Tax — mandation starts from 6 April 2026, once your gross turnover for 2024-25 passed £50,000, with the threshold stepping down in later years. Read the full MTD guide for the deadlines and penalty position, or check your own eligibility.
MTD self-employment categories
Once mandated, each quarterly update reports totals against these HMRC categories — the same fields our records tool sorts into:
- Turnover
- Other business income
- Cost of goods bought for resale or goods used
- Construction industry — payments to subcontractors
- Wages, salaries and other staff costs
- Car, van and travel expenses
- Rent, rates, power and insurance costs
- Repairs and maintenance of property and equipment
- Phone, fax, stationery and other office costs
- Advertising
- Business entertainment costs
- Interest on bank and other loans
- Bank, credit card and other financial charges
- Irrecoverable debts written off
- Accountancy, legal and other professional fees
- Depreciation and loss/(profit) on sale of assets
- Other business expenses