Chapter 1

Understanding tax obligations for the self-employed

We explore HMRC’s definition of ‘self-employment’ and the tax obligations self-employed people need to be aware of.

Illustrated person leaning against the date April 5, illustrated tablet in background.

What counts as self-employed?

A self-employed person works for themselves, rather than an employer who pays them a consistent wage. The government defines someone as self-employed if they run their business for themselves and take responsibility for its success or failure.

Self-employed people do not have the rights and responsibilities of an employee, and they are responsible for calculating and paying their own tax and National Insurance.

It’s possible to be self-employed and employed at the same time. For example, you may have a job during the week and run a side business in the evenings or at the weekend.

You must tell HMRC if you are self-employed. You need to do this by 5 October after the end of the tax year during which you become self-employed.

If you’re unsure of your employment status, take a look at this helpful guide on the website.

Do self-employed people pay tax?

Yes. Self-employed people pay income tax at the same rate that employees do, but how your tax is calculated and paid as a self-employed person works differently.

Whereas employees pay their tax “at source” —- meaning it’s deducted from their pay packet by their employer — self-employed people need to keep track of their income and work out their own tax.

If you are self-employed you must submit a self assessment tax return to HMRC every year.

As part of your accounting obligations, you’ll need to keep records of your income and expenditure. Learn more about self employed accounting in our handy guide.


Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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