How do I pay tax on self-employed income?

Updated on 16 July 2021

Self-employment

This page looks at how you report your income to HM Revenue & Customs (HMRC) so that you pay the right amount of tax, this includes grants you may have received under the Self-employment Income Support Scheme (SEISS).

Illustration of the words self-employed

How do I report my self-employed income?

When you have calculated your taxable profits from self-employment, you will need to report that income to HM Revenue & Customs’ (HMRC) so that you can pay the correct amount of tax, unless you are entitled to trading allowance full relief. If this is the case you may not need to report this income to HMRC.

Once you have registered as self-employed with HMRC you will receive a notice shortly after the end of the tax year to tell you that you need to complete a tax return for the tax year that has just finished. See How do I register for tax and National Insurance? for more information.

In 2015 the government announced their intention to abolish Self Assessment tax returns. The tax return system will eventually be replaced by HMRC’s ‘Making Tax Digital’ regime for many self-employed taxpayers. This new way of providing HMRC with details of self-employment income is currently in the pilot stage. It is due to come into effect from April 2023 onwards. . For more information, see our section: What is Making Tax Digital for Income Tax and how will it affect me?.

Do I need to include Coronavirus business support grants on my tax return?

You may have received financial support for your business during the Coronavirus pandemic. These grants may have come from your local authority (such as the small business support grants), government departments (for example the devolved administrations) or from HMRC (such as the Self-Employment Income Support Scheme (SEISS) grants).

Many of these grants are taxable and will need to be included on your tax return.

For each grant you have received you should check the conditions to see if it is taxable income and then if so, you need to work out which tax year it is taxable in, so that you know which tax return it needs to be included on. If the grants are taxable income, with the exception of the SEISS grants (see below), factors such as when you received the support grant, your basis period and whether you prepare your accounts using the cash basis or the accruals basis will affect in which tax year they are taxable, and so which tax return they should be included on.

The 2020/21 tax return has a box on page 1 (in the ‘business income’ section) of the self-employment pages for Coronavirus business support income. There is a separate box within the self-employment pages for the SEISS grants) at box 27.1 on page 2 of the self-employment (short) pages SA103(S) and box 70.1 on page 3 of the self-employment (full) pages SA103(F).

Payments received under the first three SEISS grants MUST be included in the 2020/21 tax return (your basis period or method of preparing accounts are ignored for this purpose only). There is only one exception to this rule and that is if you have claimed the SEISS grants as a partner and the grants were paid into the partnership and then shared amongst the partners as part of the partnership agreement. Our Coronavirus section contains detailed guidance on where to put the first three SEISS grants on your tax return

For the fourth and fifth SEISS grants the rules are different and the grants are treated as taxable income within the tax year they are received, so this should be the 2021/22 tax year.

When do I have to send my tax return to HMRC?

This depends on the date of issue of the notice that HMRC send you to tell you to complete a tax return and whether you complete your tax return on paper or online. The table below summarises the position.

Date of tax return or notice to file issued

Deadline for lodging paper return

Deadline for lodging return when HMRC will calculate tax (paper returns only)

Deadline for lodging return online

On or before 31 July

31 October

31 October

31 January

1 to 31 August

3 months from date of notice

31 October

31 January

1 September to 31 October

3 months from date of notice

2 months from date of notice

31 January

After 31 October

3 months from date of notice

2 months from date of notice

3 months from date of notice


There are penalties for missing the deadlines for filing tax returns.

If you miss the submission date an automatic penalty of £100 for late filing will be charged, even if you have no tax to pay or you have already paid the tax you owe. See our penalties page for more information.

However, if you miss the paper return filing deadline you may still have time to register with HMRC for online filing (if you are not already registered) and then submit the tax return online by the online filing deadline and so avoid a late filing penalty.

For 2019/20 tax returns, an informal extension of the Self Assessment filing deadline to 28 February 2021 from 31 January 2021 was given, due to coronavirus. This meant that no late filing penalties would be issued if the 2019/20 tax return was filed after the usual filing date but before 1 March 2021; see our news article for more details.

⚠️ An important point to note for those in business is that HMRC do not provide an online partnership return. Therefore, if you cannot file the partnership return by other means (such as via a tax adviser or using 3rd party software) you must file a paper version of the return by the relevant due date to avoid late filing penalties.

What if I have problems in completing my tax return?

If you get a tax return, please do not worry if you are not sure how to fill it in. You can contact HMRC for help. If you are concerned about completing the form contact the phone number on any of your Self Assessment correspondence or HMRC’s Self Assessment helpline number. Alternatively, you may wish to contact the charity TaxAid who offer help to those on low incomes with tax problems. They can be contacted via their helpline 0345 120 3779 (Monday-Friday 10 am to 4pm).

What if I make a mistake on my tax return?

If after you have filed your tax return you become aware that an entry is incorrect, you can amend that return. You have up to 12 months from 31 January following the end of the tax year to which the tax return relates to make the amendments (or if the notice to file a return was issued after 31 October, you can amend the tax return within 15 months of that notice being issued).

Therefore, if you need to amend your 2020/21 tax return you normally have until 31 January 2023 to make the amendment. This applies whether you manually filed a paper version of the return or you filed online. Or if, for example, you did not receive a notice requiring you to file your tax return for 2020/21 until 12 December 2021, then you can amend it up until 11 March 2023.

If you need to amend your tax return outside of these time limits then you need to notify HMRC so that your tax position can be corrected. If additional tax is due HMRC should issue a revised calculation once the mistake is rectified and there may be penalties. If tax is overpaid due to the mistake, you should make a claim for overpayment relief to obtain a refund. You can read about how to do this in the section: How do I claim a refund if it is too late to amend my tax return?.

GOV.UK explains how you can make an amendment to your tax return whether you have filed a paper tax return or an online tax return using HMRC’s online system or commercial software.

If you have claimed the fourth and/or fifth Self-Employment Income Support Scheme (SEISS) grants, then you will need to consider whether amendments to your tax return mean you were not actually eligible to claim these grants or whether the grant(s) received should have been less. We have more guidance on this in our Coronavirus section.

Who calculates the amount of tax I owe?

If you submit your tax return on paper, HMRC normally calculate your tax for you and send you a tax calculation, form SA302. In order to receive a paper form SA302, usually you must submit your paper tax return before 31 October and ask HMRC to work out your tax, by ticking the relevant box on the tax return.

If you send a paper tax return after 31 October (which you should avoid doing, if possible, as you will incur a penalty for late filing), HMRC may calculate your tax, but they do not guarantee to tell you how much tax you owe in time for the payment deadline of 31 January.

If you submit your tax return online, HMRC’s online system will calculate your tax automatically, and you can view the calculation online or print it out.

You may already have had tax deducted from some income, for example you are registered under the Construction Industry Scheme (CIS) or you are employed and self-employed. In this situation you include all the income on the tax return, whether or not it has already been taxed, and also include the tax that has been deducted at source. However, do not include any tax paid as a payment on account. The tax calculation will then automatically take account of any tax paid at source (for example, through CIS or PAYE) so the final position shown by the calculation will be the amount that is left to be paid through Self Assessment or to be refunded. Any payments on account already made should then be compared to the final position shown by the calculation to see whether there is any further amount to pay (known as the balancing payment) or to be refunded.


Example: Chloe

Chloe is employed part-time and also runs her own business. During the 2020/21 tax year she earns £15,000 from her job and pays tax through PAYE of £500, she also earns profits of £4,000 from her self-employment. When Chloe completes her 2020/21 tax return she includes all her employment income and tax deducted through PAYE and her self-employment profits. Her tax calculation will look as follows (ignoring National Insurance contributions for this illustration):

Tax calculation

Employment income

£15,000

Self-employment profits

£4,000

Total income received

£19,000

minus Personal Allowance

(£12,570)

Total income on which tax is due

£6,430

Income tax due at 20%

£1,286

minus tax deducted

(£500)

Total income tax due by 31 January 2022

£786


⚠️ Important: If Chloe had been paying tax through payments on account then these would not show on HMRC’s calculation (either on the SA302 calculation or the online system) and should be considered separately when working out what tax is still left to pay.

We illustrate this below:

Assume that Chloe had higher profits in the 2019/20 tax year so was due to make payments on account totalling £1,200 for the 2020/21 tax year as follows:

  • 31 January 2021: £600
  • 31 July 2021: £600

When Chloe submits her 2020/21 tax return online in November 2021 her total income tax due would still show as £786 even though she is actually due a refund of £414 (£600 +£600 less £786) as she has overpaid her tax through payments on account. Chloe will need to deduct her payments from the online calculation to work out she is due a refund. After the online tax return has been automatically processed Chloe should be able to see that she is due a refund in her HMRC personal tax account and claim this back from HMRC.


When do I pay income tax on my self-employed profits?

You pay tax on your self-employed profits at the same time as you pay tax on all of your other income for a tax year under Self Assessment. Remember you pay Class 4 National Insurance contributions (NIC) at the same time as your income tax.

From here on, we will refer to income tax, but that should be taken to include Class 4 NIC. For information on when you pay your Class 2 NIC see our section How and when do I pay my Class 2 and Class 4 NIC?.

Generally speaking you pay your income tax in three instalments as follows:

31 January in the tax year to which the tax bill relates

50% of prior year liability (known as first payment on account)

31 July following the tax year to which the tax bill relates

50% of prior year liability (known as second payment on account)

31 January following the tax year to which it relates

balance of any tax due (known as balancing payment)
PLUS first payment on account for next tax year


⚠️ Note: Class 2 NIC, Capital Gains Tax, and/or student loan repayments due are always paid as part of the balancing payment and are not included in payments on account.


Example: Marcus

Marcus has an income tax (including Class 4 NIC) liability of £2,500 for 2019/20 and he also has a Class 2 NIC liability of £156, Therefore his total payments for the 2019/20 tax year are £2,656. His income tax (including Class 4 NIC) liability for 2020/21 is £3,500, and his Class 2 NIC bill is £158.60.

His payments for 20/21 are as follows:

31 January 2021

£1,250 (50% of £2,500)

31 July 2021

£1,250 (50% of £2,500)

31 January 2022 £2,908.60 which is £1,000 (balancing payment)
PLUS £1,750 (50% of £3,500)
PLUS £158.60 (Class 2 NIC)


You will see that in this case for Marcus there are two amounts of tax being paid on 31 January– the balance of tax due for one year and a payment on account for the following year.


If you do not come within the payments on account regime (see section below) then you usually have to pay any tax that you owe to HMRC by the 31 January following the end of the tax year in question. So, if you owe tax for the 2020/21 tax year this is due by 31 January 2022.

See our section: When do I make Self Assessment payments and file my tax return? for more information.

What are payments on account?

Payments on account are basically a way of paying some of your tax bill in advance. You normally have to make a payment on account if your previous year’s bill (excluding Class 2 NIC) was over £1,000, unless more than 80% of your previous year’s tax was taken off at source. Tax will be taken at source if, for example, you are also employed as well as self-employed, through Pay As You Earn (PAYE) or have deductions at source if you are a subcontractor under the Construction Industry Scheme (CIS).


Example: Robert

Robert's income tax liability (excluding Class 2 NICs) for 2020/21 is £2,800. PAYE and tax paid at source cover less than 80% of the total due. Robert will need to make payments on account for 2021/22 (the year to 5 April 2022).


The payments on account are based on your total tax and National Insurance contributions bill for the previous year but excluding Class 2 NIC. So you must first deduct any Class 2 NIC amount and you will then pay half of the remaining amount as a payment on account on 31 January during the tax year and half on 31 July following the tax year.

On 31 January you also pay any balance of tax due for the previous tax year together with the Class 2 NIC due for that year, so you may have two amounts of tax to pay (the balancing payment for the previous year and the first payment on account for the current tax year), but you can pay both together as a single total.


Example: Robert continued

By 31 January 2022 Robert will need to pay his 2020/21 tax liability and his Class 2 NIC for 2020/21 and will also need to make a payment on account for the tax year 2021/22 (year ending 5 April 2022).

His 2021/22 payments on account will be based on half of his 2020/21 tax liability.

Robert will therefore need to make payments on account of £1,400 on 31 January 2022 and £1,400 on 31 July 2022.


If HMRC make an amendment to your return or you notify them of an amendment that will increase the tax due, any extra tax will be payable 30 days from the date of the amendment although interest will run from the date that the tax should have been paid.

I expect my tax bill to be less this year than last year. What can I do?

You can apply to reduce your payments on account. You can do this at any time using form SA303 either online or in paper form up to when the balancing payment is due. You can also make the claim on the previous year's tax return giving details of the circumstances in the additional information box at the end of the form.

⚠️ Please bear in mind that if you reduce your payments on account below what they should in fact have been you will have to pay interest on the shortfall from the date each payment on account was due and in some cases HMRC may charge a penalty if the reduction is excessive. Any taxable Coronavirus support payments such as grants received under the Self-Employment Income Support Scheme (SEISS) are treated as taxable income and should be included when calculating payments on account.


Example: Robert continued

Robert's income for 2021/22 is likely to be much lower than that for 2020/21, so he can claim to reduce his payments on account. Robert works out that he will only have a tax bill for 2021/22 of around £2,200. The reduction will be £600. He therefore claims to reduce each of his 2021/22 payments on account by £300.

On 8 February 2022 Robert realises that he has reduced his payments on account by too much. He thinks he will have a tax bill for the year 2021/22 of nearer £2,500 and not £2,200.

Robert contacts HMRC to let them know he will need to pay more tax on each instalment. He has already paid the 31 January 2022 instalment of £1,100 (half of £2,200) so he needs to pay a further £150 on that instalment and he will also need to pay £1,250 by 31 July 2022. He sends a cheque with his letter, which HMRC received on 12 February 2022.

The July instalment was not due when Robert notified them so there is no extra interest to pay but he will have to pay interest on the additional £150, which should have been paid with the first instalment on 31 January 2022. The interest will run from 1 February 2022 to 12 February 2022 – the date HMRC received payment of the £150.


I have already paid a payment on account, but now realise I paid too much. What can I do?

You should still complete form SA303. Any excess that you have paid can be refunded to you as long as it is at least 30 days until your next payment is due, or it can be held by HMRC and set against the next payment when it becomes due. If your next payment is due within 30 days, the refund will automatically be held and will be set against the next payment due.

I have never paid payments on account before, but this year I have been asked to pay. Why is that?

The fact that you have to make payments on account this year suggests that either your income has increased, or that a higher proportion of your income has not suffered tax at source. Please note the Self-employment Income Support Scheme (SEISS) grants and many other Coronavirus business support grants are taxable income and may result in you moving into payments on account in respect of the 2021/22 tax year for the first time.

You only make payments on account if your previous year’s tax and Class 4 NIC bill was above £1,000 and only then if less than 80% of the liability was collected by being deducted at source from the income.

⚠️ Top Tip: It can be quite a shock to your cash flow when you first move to payments on account. It may help you to put aside a certain amount each time you get paid into a different bank account (see below). If you submit your tax return as soon as possible it will give you more time to save up for both the current tax which is due and your payments on account for the following tax year.

How can I best prepare for my tax bill?

For most people, setting aside a rough percentage (%) of their ‘net’ income (after any expenses), will help make sure that their tax bill, along with the payments on account, can be met. Our table may help you work out your rough % using 2021/22 rates (please note that these are based on UK income tax rates see our webpages for information on Scottish rates of income tax and the Welsh rates of income tax):

Net income

Total first year’s tax and Class 4 NIC (excluding Class 2 NIC)

First year’s payment PLUS next year’s POAs

Rough % of net income to save

£17,500

£1,699.88

£2,549.82

15%

£20,000

£2,424.88

£3,637.32

18%

£22,500

£3,149.88

£4,724.82

21%


Example: Hugh

Hugh began trading as an electrician in April 2021. In the tax year 2021/22, he worked on a number of home renovations and issued invoices as follows:

  • Job 1: Labour £3,500, Materials £750, Total: £4,250
  • Job 2: Labour £5,250, Materials £930, Total: £6,180
  • Job 3: Labour £3,900, Materials £450, Total: £4,350
  • Job 4: Labour £1,305, Materials £80, Total: £1,385
  • Job 5: Labour £4,870, Materials £310, Total: £5,180

His total income in 2021/22 was £21,345 but his expenses totaled £2,520, so his ‘net’ (i.e. taxable) income was £18,825. Hugh looks at the table above and decides to put aside 17% of his ‘net’ income each time his invoices were paid, meaning at the end of the tax year, he had saved £3,200 towards his tax bill. His 2021/22 tax bill (excluding Class 2 NIC) looks like this:

Total due by 31 January 2022 £3,156.37

Net income

£18,825

Less personal allowance:

-£12,570

Taxable income

£6,255

 

 

Tax due on £6,255 @ 20%

£1,251

Class 4 NIC (£18,825-£9,568) x 9%

£833.13

Total tax bill for 2021/22

£2,084.13

 

 

First payment on account for 2022/23

£1,042.06

Total due by 31 January 2023

£3,126.19


We can see that Hugh has saved enough to pay what he needs to on 31 January 2023. He has some left over to go towards his second payment on account of £1,042.06 due on 31 July 2023.


How do I pay the tax owed?

You will not automatically be issued with a payslip by HMRC in advance of the payment dates on 31 January and 31 July. If you do not receive a payslip you should organise payment anyway otherwise you might incur a fine for late payment and not receiving a payslip from HMRC will not be accepted as a reasonable excuse for late payment.

There are various ways to pay and these are explained on GOV.UK.

I am also employed. Can my tax be collected via my PAYE code number?

Provided the tax outstanding is less than £3,000 it may be collected via your Pay As You Earn (PAYE) code number as long as that would not mean that more than 50% of your employee pay was collected for tax. If you earn more than £30,000, a higher amount may be collected via your code number.

If you want to take this option, you will need to send in your tax return by 31 October on paper, or by 30 December if you are lodging online. If you have filed within these time limits and the tax does not appear to be collected this way, you can contact HMRC to query this.

What happens if I pay my tax late?

You will be charged interest from the date the payment was due until it is paid. You may also be liable to a penalty if your balancing payment is late, unless you have agreed a repayment plan with HMRC before the penalty arises. Due to the Coronavirus outbreak there is a change to the late-filing penalty rules for payments due by 31 January 2021; see our press release for more details.

I am having financial difficulties and can’t pay my tax bill. What should I do?

If you cannot pay the amount due in full then you should contact HMRC to discuss the possibility of setting up a time to pay arrangement as soon as possible.

What is Making Tax Digital for Income Tax and how will it affect me?

HMRC’s ‘Making Tax Digital’ programme is being phased in over a number of years, following the announcement in 2015 that it was the government’s intention to eventually abolish the Self Assessment tax return.

Making Tax Digital for VAT was the first element of the programme to be rolled out in April 2019. Most VAT registered businesses already come within the new regime, but all VAT registered businesses will be required to comply with the Making Tax Digital for VAT rules from April 2022 unless exempt.

Making Tax Digital (MTD) for Income Tax is currently scheduled to become mandatory for all businesses with an annual turnover of £10,000 or more from April 2023, unless HMRC agree you are exempt (see below). Some of the more specific details of the new system are not yet finalised, however non-exempt businesses will be required to:

1. Keep their business records in digital format. This means that most businesses will either have to use specific accounting software packages or apps or maintain spreadsheets to record their business transactions. Many software companies are still developing products to meet the MTD requirements. Products currently on the market are listed on GOV.UK. HMRC will not be providing free software, but they expect some free products to be available from third party software providers in due course.

2. Submit quarterly updates to HMRC to declare business income and expenses for the three-month period covered by the update. The intention is for the reports to be automatically generated by the record keeping system so this should not be an onerous process.

Bridging software should also be available in due course which will enable those using spreadsheets for record keeping to link to HMRCs computer systems and submit the required quarterly update information.

1. Submit an ‘end of year declaration’ to confirm the final taxable profit for the business, and to provide details of any other taxable income in the tax year.

It will be possible to apply for exemption from the MTD system provided you have good reason for not being able to comply with it, for example you have an unreliable broadband connection, disability prevents you from using computers, you live in a remote location with poor broadband access, etc. The process for claiming exemption has not yet been confirmed by HMRC. We will update this page once more information becomes available.

If you will need some help to be able to meet the MTD rules, HMRC will be offering support and assistance, however it is not yet clear how this will be provided. We will update this page as soon as more information becomes available.

Digital tax accounts for both individuals (Personal Tax Account) and those in business (Business Tax Account) are also now available to most people and these allow you to interact digitally with HMRC in connection with tax matters, and other matters such as National Insurance contributions records, state pension entitlement, etc.

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