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From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

Self-employment

Self-employed people are those who ‘work for themselves’. For some people, it is clear they are running their own business and are self-employed. However, it may not be as straightforward for others, and you may need to consider your employment status to decide whether you are employed or self-employed.

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Overview

You can be self-employed in a number of ways, including as a sole trader, as a partner in a partnership, working under the Construction Industry Scheme (CIS), or working in the gig economy. You may also be employed and self-employed at the same time – for example, you could work part-time in the day and run your own unrelated business in the evenings. You may also have more than one self-employment business, known as multiple trades.

  If you have a limited company, you would not be self-employed with respect to the work carried out through that company. See our page on limited companies for more information.

Reporting self-employment 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 and National Insurance, 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 Collecting tax on self-employment income below).

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 for Income Tax’ regime for some 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 2026 onwards for those who are affected.

Collecting tax on self-employment income

If you are self-employed, you must normally complete a self assessment tax return each year. This is because it is not usually possible for HMRC to collect any tax on your self-employment income through deduction at source, although there are exceptions such as working in construction or as an exam marker.

You only pay income tax and National Insurance contributions on any taxable profits you make, that is, the excess of your self-employment income when compared with deductible business expenses.

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