UK Payroll and Taxes for Self-Employed Individuals: The Ultimate Guide

Whether you’re a sole trader or a self-employed business owner with a roster of employees, payroll for self-employed people can be a real headache. But with a bit of planning and the right tools, it doesn’t have to be.

This guide covers everything you need to know about the UK’s self-employed payroll landscape. We explain what running payroll means, how to pay your taxes, handy dates to keep in your diary to ensure compliance, and more.

Key Takeaways

• Self-employed individuals in the UK are responsible for calculating, declaring, and paying personal tax and National Insurance (NI) contributions.
• UK employers, including self-employed business owners with employees, are responsible for ensuring employees’ tax, NI, and pension contributions are properly declared to His Majesty’s Revenue and Customs (HMRC).
• HMRC and ExpertMarket provide essential tools and guidance to help self-employed individuals and businesses manage payroll with confidence and compliance.

What Is Payroll, and Why Is It Important?

Payroll is the process of paying employees for their work.

For UK employers—including self-employed business owners with employees—payroll is about ensuring workers are paid fairly and at the proper rate for the work completed and correctly calculating tax, National Insurance (NI), and pension contributions.

On the other hand, payroll for self-employed individuals is more about managing your income and tax liability. You must set aside money from each invoice to cover your taxes, NI, pension contributions, and student loan repayments. You don’t officially ‘pay’ yourself like an employee, but you do need to keep track of your earnings and expenses to work out your profits, declare your earnings, and pay the right amount to His Majesty’s Revenue and Customs (HMRC).

If you own your own business and employ people, you’ll have to run payroll for your employees and yourself (i.e., calculate your profits and pay the appropriate taxes, NI and pension contributions, and student loan repayments).

Key Dates for UK Payroll for Self-Employed Individuals and Business Owners

• 31 January: The day you must pay your income tax and your first payment on account* (i.e., payment toward your upcoming tax bill).
• 5 April: The end of the previous tax year for businesses and sole traders.
• 6 April: The start of the new tax year for businesses and sole traders.
• 19 April: If you run a business, you need to submit your employer payment summary if no employees were paid in the last tax year or if you want to claim any deductions or payments as part of your employment allowance.
• 31 May: The final date for giving your employees their P60 forms for any earnings in the previous tax year.
• 6 July: The final date to submit your P11D forms to HMRC. These forms detail any benefits and expenses provided to employees during the last tax year.
• 31 July: The date by which you must make your second payment on account.*

*You must make your payments on account by the dates listed above, unless either:

• You owed less than £1,000 in the previous tax year.
• You paid more than 80% of the tax you owed in the previous tax year “outside of Self Assessment,” such as through your tax code or deductions on the interest of your savings.
• Your Self Assessment statement or online HMRC account will show you how much your payments on account are and if you need to pay them.

How Much Money to Set Aside for UK Taxes as a Self-employed Person

How much tax you need to pay will depend on how much you earn:

*Per HMRC, “Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000.”

If the above is a little confusing, here’s what it might look like in practice:

Example 1: You start a small business baking cakes for children’s birthday parties. You make £9,850 after expenses. You need to declare this income, but you don’t need to pay any tax or NI contributions.

Example 2: You start a side hustle in addition to your main job. Your main job is as an accountant, where you make £45,000 per year, while you make £15,000 in your side hustle as a self-employed bookkeeper. Your workplace handles your employed tax, but you’re still responsible for your side hustle tax. You’ll need to pay the 28% total tax and NI rate on what you earn between your employed £45,000 and £50,271 (this comes out to £1,475) and 42% on the remaining figure up to the total £60,000 earnings. Your total tax and NI liability will, therefore, be £5,562.06.

Example 3: You start a business where you manufacture and sell a specific component of race car engines. The business grows exponentially, and by your third year, you’re making £250,000 per year in taxable income. Earning this amount means you lose your non-taxable allowance and must pay tax on your entire taxable income. Your total tax liability includes a £98,703 tax payment and £7,764.60 NI contributions.

How to Pay Your Tax

Now, let’s go over how you can pay your taxes as a self-employed individual or a self-employed business owner with employees.

As a Self-Employed Individual

1. Register as self-employed

The first thing you need to do is register as self-employed through the HMRC website.

You must do this by 5 October of the tax year you began self-employment. For example, if you started a self-employment side hustle in November 2024, you’d need to register as self-employed by 5 October 2025.

When you register, you’ll receive a 12-character Government Gateway ID. Keep this handy, as you’ll need it to pay your taxes for the first time and log into your HMRC account.

2. Figure out your income

In the UK, you pay tax on only your taxable income (aka profits), so you need to determine your earnings and business expenses from the latest tax year, which runs from 6 April of the previous year to 5 April of the current year.

Taxable income is anything you’ve earned minus any allowable business expenses, such as office supplies, travel costs, or software fees. You can calculate taxable income by working through paid invoices, tracking your business expenses, and ensuring you’ve accounted for any allowable deductions.

For example, say you’ve earned £35,000 as a self-employed glass blower this tax year. You pay £500 per month to rent a building space, £100 on utility bills, £150 on raw materials, and £150 on miscellaneous costs related to your business. You can take all these costs off the amount you should owe in tax.

Be sure to check the final figure against your business bank account deposits and withdrawals to ensure everything matches up.

3. Log in to HMRC

The easiest way to pay your taxes is through HMRC’s online portal. This will have been set up when you registered as self-employed and received your Government Gateway ID.

Log into the HMRC website, look for the link that says ‘File a return for [year]/[year],’ and follow the instructions to declare your income. There will be options to submit your expenses, declared income, pension contributions, and charitable contributions.

HMRC will then tell you how much tax you owe. It usually does this immediately, but your account can take up to two days to update. As mentioned, the amount you owe will depend on your taxable income and tax band(s).

Unfortunately, you can’t file your tax return offline. However, you can pay by post if you prefer.

You can submit your tax return at any time in the new tax year for the previous tax year. For example, you can declare your 2024/2025 taxable income as soon as 6 April 2025.

4. Pay your tax

The next step is to pay your tax. If you have the money set aside, feel free to pay straight away. However, if you don’t, you may have some time, depending on when you’ve gone to pay.

You usually need to pay a portion of your tax bill in July. This is usually half of the total balance and must be paid by July 31 of the current year. You then have until January 31 of the next year to pay the remaining balance. These are called payments on account. You may also need to pay a portion of your next year’s tax bill in advance, calculated based on previous earnings.

If you earn more than expected, your payments on account may not have been enough to cover your current tax liability. In this instance, you’ll be asked to make balancing payments to bring your tax account up to date. These balancing payments are typically due by January 31 of the following year.

Let’s look at an example:

Say you fill in your tax return on 6 April, and HMRC informs you that you owe £15,300 in tax. Here’s how your payment might break down:

• By July 31 of the current year, you’ll need to pay £7,650—half of the total tax bill.
• By January 31 of the next year, you’ll pay the remaining £7,650 and a potential first payment on account for the following tax year, which is usually 50% of your current tax bill. This means you may need to pay an additional £7,650, bringing the total due in January to £15,300.

As above, it’s easiest to pay online. However, you can also pay by post if you prefer. Just ensure you’ve paid well in advance so your cheque clears by 31 January.

5. Any issues, reach out to HMRC

If, for whatever reason, you don’t have the money to pay your tax bill, reach out to HMRC as soon as possible. Agents can help you set up a payment plan or offer options to spread the cost over a more extended period.

Ignoring the bill or delaying communication can lead to penalties, interest charges, or even enforcement action, so it’s always best to be proactive. HMRC generally understands if you’re having genuine financial difficulty and would rather help you find a solution than have you miss payments.

As a Self-Employed Business Owner with Employees

If you’re a self-employed business owner with employees, follow the steps above to pay your own taxes. To calculate and pay taxes for your workers, follow the steps below.

1. Register as an employer with HMRC

First, you need to register as an employer with HMRC. This is a simple process you can complete online in as little as 10 minutes.

2. Calculate employee pay

Next, determine how much your employees are due to be paid. You can use a rota scheduling and payroll system to calculate this automatically based on hours worked. Or, you can do it manually by adding up the hours worked, multiplying by the correct hourly rate or salary, and factoring in any overtime, bonuses, or commission.

Ensuring everything is accurate is vital, as errors can lead to underpayment or overpayment and subsequent incorrect taxing, which can cause headaches down the line.

3. Use employees’ PAYE code to calculate deductions

You should then use your employees’ PAYE codes to calculate their tax contributions. These codes help you determine how much each employee owes in income taxes and the NI contributions to deduct from their pay.

When a new employee joins your business, they should provide you with their P45 form from their previous job, which will have their current tax code on it.

Common tax codes include:

• 1257L: For people with one job and no other taxable income.
• 1257M: For people with one job who are married and have transferred some of their non-taxable allowance to their spouse.
• 1257D0: A higher-rate taxpayer who has not lost their non-taxable personal allowance.
• NT: No tax deducted—for example, if the person is in full-time education or earns under the tax threshold.

If an employee doesn’t provide their P45 or you don’t know their tax code, put them on an emergency tax code (usually 1257L M1 or W1, depending on whether you pay monthly or weekly) until HMRC updates their tax code.

4. Submit Payroll Reports (RTIs)

Once you’ve calculated how much you owe to HMRC, you need to submit your payroll reports to HMRC using Real Time Information (RTI). This will include details of all the gross pay, payroll taxes, NI, and net pay for each pay period.

5. Provide payslips to your employees

Next, provide your employees with payslips. These should show the gross pay, the tax and National Insurance deductions, any other contributions (like pensions), and the net pay. Providing this transparency keeps things clear and helps your employees understand how their pay has been calculated.

Keep a record of all payslips provided to your workers in case you’re audited or need to refer to them later. To be legally compliant, you must keep copies of payslips for three years after they’re issued.

6. Pay your deductions online

Once you’ve figured out how much your employees should pay, you can either pay online or set up a direct debit to HMRC to make your tax and National Insurance payments. This should be done on time to avoid penalties and interest. The deadline is always the 22nd of the month.

How to Pay Your Employees or Contractors

There are two main ways you can go about paying your employees or contractors:

Bank transfer

A bank transfer is a straightforward way to pay an independent contractor or freelancer for a specific project or service. With this method, you’ll pay the agreed-upon amount directly to their bank account after they’ve completed the work and sent you an invoice. It’s also useful for employees who are paid weekly but tend to be paid different amounts every week.

A bank transfer can be a one-time payment or a series of payments, depending on the terms of your agreement. It’s important to ensure that you both have agreed on the payment terms beforehand, such as due dates and amounts.

Recurring payment

If you need to pay an employee more regularly, consider setting up a recurring payment for the same amount every week or month. This is useful for employees with a set salary and contractors with ongoing work and a fixed payment schedule.

For employees, recurring payments are often set up through direct deposit or BACS (Bankers’ Automated Clearing Services), where the same salary amount is automatically paid into their bank account on a regular basis.

Payroll Software for Self-Employed People

You might find the following payroll tools useful as a self-employed person—whether you’re an individual or a business owner with employees.

QuickBooks

QuickBooks is a popular accounting software you can use on your mobile devices. It lets you track income and expenses and send invoices on the go, making it a handy tool for busy self-employed professionals. QuickBooks also integrates well with various payroll methods, so you can easily track and pay employee wages.

Further reading: How Much Does QuickBooks Payroll Cost in 2025?

Xero

Xero is another excellent online payroll and accounting software option. It’s especially useful for managing multiple accounts or handling slightly more complex finances.

Xero offers features like invoicing, expense tracking, and VAT management. Its mobile solution also provides payroll integration, allows you to accept payments, and even has a free trial so you can see if it’s a good fit for you.

Further reading: An Overview of Xero Payroll Pricing

Sage

Sage is an all-in-one payroll and business management tool that provides more detail than standard accountancy tools do. It offers automated payroll, tax calculations, an AI-powered productivity assistant, and business compliance tools.

Further reading: How Much Does Sage Payroll Cost?