How Do Self-Employed People Pay Income Tax?

As the saying sort of goes, paying tax is pretty much inevitable, whether you’re employed, self-employed, or earning money from a side hustle or as a landlord.

The money you earn from an employer is usually taxed at source, which means your employer deducts the right amount of tax and National Insurance on your behalf, and pays this on to HMRC. Income from other sources is a bit different because you’ll need to report this yourself using a tax return.

In this article post we’ll answer frequently asked questions around paying Income Tax as a self-employed person, including how to report your earnings, and estimating how much you’ll need to pay.

How do I report my self-employed income for tax?

As a sole trader or someone who receives other types of untaxed self-employment income (such as from property) this will usually mean sending either:

You’ll fill in the details of everything you earn, and how you earn it, along with information about any expenses which relate to your self-employed income. This information goes to HMRC, and they use it to work out how much tax you still need to pay for that tax year.

Who is expected to pay Income Tax?

Income Tax is payable on pretty much all the income that you earn. If you are employed, then your earnings are most likely taxed through the PAYE system so you don’t need to worry.

Earnings outside of that, such as from freelance work, dividends, or a side hustle, normally aren’t taxed so you’ll need to report these using a tax return, and pay the right amount of tax on them. This income could come from a range of different sources, such as:

How much Income Tax do self-employed people need to pay?

The amount of Income Tax you pay can vary each time you submit your tax return for the year, because the calculation is based on how much you earn and spend.

Some of your earnings will be tax-free, because there are tax allowances such as:

The other point to remember is that the tax you owe as a self-employed person is based on the amount of profit that you make. Not the total income. This is because you’re entitled to tax relief on allowable expenses. Your expenses reduce the amount of profit, so you’ll pay less tax.

It’s why it’s so crucial to keep good bookkeeping records, so that you can claim all your allowances, and pay the right amount of tax! Hey, every penny really does count. Check out our guide to tax relief and allowances for self-employed people to learn more.

What are the Income Tax rates and thresholds for 2025/26 and 2026/27?

We refer to two tax years because you’ll need the 2025/26 amounts for the tax return which covers that year (and the deadline hasn’t passed yet, so you might still need to submit it). We show the current tax year rates too because we’re nice, and it’s handy to plan ahead.

What happens if I am both employed and self-employed?

If you have a second job or side hustle, the tax and National Insurance you are required to pay on your employment earnings will be taxed through PAYE, so you don’t need to worry about that. You will, however, still need to tell HMRC about your self-employed income.

You’ll also need to make sure you include the details of your employment income on your income tax return. You won’t pay tax on it twice, but you’ll need to show HMRC so they can cross-reference your PAYE record, and make sure that your total earnings are taxed in the correct tax band.

How do I sign up for self-employed tax returns?

The first step is to register as a sole trader with HMRC.

This will automatically enrol you for Self Assessment, but you may need to start using MTD Income Tax in the future depending on your qualifying income.

Making Tax Digital for Income Tax

Making Tax Digital (MTD) is a government initiative designed to simplify how business owners manage their taxes. The changes are being rolled out in stages.

Making Tax Digital for Income Tax is the next phase to be rolled out, which will transform how sole traders and landlords record their income and expenses.

How do I pay my tax bill?

You’ll normally receive your tax calculation as soon as you submit your final tax return, and can pay the bill in a number of ways:

Learn more about using Pandle to make business accounting easier. Create an account today and decide what to do with all the extra time you get back.