How Self-Employed Tax Works for Tradesmen in the UK (Complete Guide)

This guide is part of our Tax for Tradesmen section, where we explain how tax works for self-employed tradespeople.

Understanding tax when you’re self-employed can feel confusing, especially if you’ve spent most of your career working under PAYE.

Many tradesmen get their first tax bill and are shocked by how much they owe, simply because nobody explained how the system works.

In this guide, we’ll break down how self-employed tax works in the UK, including Income Tax, National Insurance, expenses, and why some tax bills seem to double.

Why Tax Is Different When You’re Self-Employed

When you work as an employee, tax is usually handled automatically through the PAYE (Pay As You Earn) system. Your employer calculates the amount of Income Tax and National Insurance you owe and deducts it directly from your wages before you receive your pay. This means most employees never need to worry too much about calculating their own tax because the system takes care of it for them.

When you are self-employed, things work differently. Instead of an employer deducting tax for you, you receive the full payment from your customers and are responsible for calculating and paying your own tax. This is done by completing a Self-Assessment tax return each year and submitting it to **HM Revenue and Customs. Your tax bill is then based on your business profit, which is the money you earn from jobs minus your allowable business expenses.

Because tax isn’t automatically taken out of your income, many self-employed tradesmen get caught out the first time they receive a tax bill. That’s why it’s important to understand how the system works and to set aside money throughout the year so you’re prepared when your payment to **HM Revenue and Customs is due.

Registering as Self-Employed

If you start working for yourself in the UK, one of the first financial steps is registering as self-employed with HMRC. This tells the tax authority that you are now responsible for reporting your own income and paying the correct amount of tax and National Insurance.

When You Need to Register

You usually need to register as self-employed if you earn more than £1,000 in a tax year from self-employment. This £1,000 is known as the Trading Allowance. If you earn above this threshold, you must inform HMRC and complete a Self Assessment tax return each year.

Even if your side work is only part-time or alongside a full-time job, you still need to register if your earnings exceed the allowance.

How to Register

Registering is normally done online through the HMRC website. The process involves:

1. Creating or logging into your Government Gateway account
2. Registering for Self Assessment
3. Declaring that you are working as a sole trader

Once registered, HMRC will send you a Unique Taxpayer Reference (UTR). This is a 10-digit number used to identify you when submitting tax returns and communicating with HMRC.

Deadlines to Know

If you started working for yourself during a tax year, you must register by 5 October following the end of that tax year.

Example:

• If you started self-employment in June 2026, the tax year ends 5 April 2027
• You must register by 5 October 2027

Missing this deadline can lead to penalties.

What Happens After You Register

Once registered as self-employed, you are responsible for:

• Keeping records of your income and expenses
• Submitting a Self Assessment tax return each year
• Paying Income Tax and National Insurance contributions

Unlike employees who have tax automatically deducted through PAYE, self-employed people manage and pay their own taxes directly to HMRC.

Why Registration Matters

Registering properly keeps your business compliant and avoids fines. It also means you can claim allowable expenses, which reduce the amount of profit you pay tax on.

For anyone starting a trade or side business, registering as self-employed is a simple but important step toward running your finances properly.

Income Tax Explained

Income Tax in the UK works using tax bands. This means the more you earn, the higher the rate of tax applied to portions of your income.

The current basic structure set by HM Revenue & Customs is:

• Personal Allowance – the first £12,570 you earn is usually tax-free
• Basic Rate (20%) – income from £12,571 to £50,270
• Higher Rate (40%) – income from £50,271 to £125,140
• Additional Rate (45%) – income above £125,140

A key thing to understand is that you don’t pay one rate on all your income. You only pay the higher rates on the portion that falls into those bands.

Example:
If a tradesman earns £35,000 profit in a year, they only pay tax on the amount above the personal allowance.

National Insurance for Tradesmen

Self-employed tradespeople also pay National Insurance contributions (NICs).

National Insurance helps fund things like the NHS and the State Pension.

For most self-employed people there are two types:

Class 2 National Insurance

• A small weekly contribution
• Paid if profits are above a certain threshold

Class 4 National Insurance

• A percentage of your profits
• Charged once profits pass the lower profits limit

These are calculated and paid through your Self Assessment tax return to HM Revenue & Customs.

Allowable Expenses

One advantage of being self-employed is that you can deduct allowable business expenses before paying tax.

This reduces your taxable profit.

Common examples for tradespeople include:

• Tools and equipment
• Work clothing or PPE
• Vehicle costs
• Fuel
• Materials
• Insurance
• Accounting fees
• Phone used for work

Keeping good records of expenses can significantly reduce the amount of tax owed.

(You can link here later to your full article explaining allowable expenses for tradespeople.)

Payments on Account

Many new self-employed workers are surprised when their second tax bill is much larger than expected.

This is because of something called Payments on Account.

If your tax bill is over £1,000, HM Revenue & Customs may ask you to make advance payments towards next year’s tax.

This means you pay:

• Your tax for the previous year
• Plus half of the next year’s estimated tax

For example:

If your tax bill is £3,000, you might pay:

• £3,000 for last year
• £1,500 towards next year

Total due in January: £4,500

This is why some tradespeople feel like their tax bill has doubled.

When Tax Is Due

There are two key tax payment dates each year for self-employed people.

31 January

• Deadline to submit your Self Assessment tax return
• Pay your main tax bill
• Pay your first payment on account

31 July

• Pay your second payment on account

Missing these deadlines can result in penalties from HM Revenue & Customs.

How Much Tax Should Tradesmen Save?

A simple rule many tradespeople follow is to set aside 25–30% of their profit for tax.

The exact amount depends on:

• Your total income
• Your expenses
• Your tax band
• National Insurance contributions

Saving tax money regularly prevents the stress of a large tax bill in January.

(You can link here to your earlier article about setting aside tax money.)

A Simple System to Stay Organised

Managing tax is much easier if you set up a simple system from the start.

Here is a straightforward approach many tradespeople use:

1. Use a separate tax account
Transfer a percentage of every payment you receive into a separate bank account for tax.

2. Track expenses regularly
Record receipts and expenses weekly so nothing gets forgotten.

3. Save money regularly
Putting aside tax money every time you get paid prevents surprises when the tax bill arrives.

Staying organised throughout the year makes submitting your tax return far less stressful.

Table for Tax Bands

Income	Tax Rate
£0 – £12,570	0% Personal Allowance
£12,571 – £50,270	20% Basic Rate
£50,271 – £125,140	40% Higher Rate
£125,140+	45% Additional Rate

Example:

A self-employed electrician earns £60,000 in a year.
After expenses of £20,000, their profit is £40,000.

Tax and National Insurance are then calculated on that £40,000.

Usefull Links

How Much Tax to Set Asidehttps://financefortradesmen.wordpress.com/2026/03/09/how-much-tax-should-self-employed-tradesmen-set-aside-in-the-uk/

What Expenses Can Tradesmen Claimhttps://financefortradesmen.wordpress.com/2026/03/09/what-expenses-can-tradesmen-claim-against-tax/

Payments on Account Explainedhttps://financefortradesmen.wordpress.com/2026/03/09/payments-on-account-explained-for-tradesmen/

Written by the founder of Finance for Tradesmen, with over 30 years of experience in the electrical industry.