A Reddit user recently posted a question that lands in thousands of inboxes every spring: they’d had a PAYE part-time job for a few years, just started freelancing one day a week for another company, and were invoicing for the first time. “I’ve never really done any of this before, so trying to work it all out as I go along,” they wrote. “What should I be doing this year, to make taxes and anything else as easy as possible for myself? I don’t want to miss doing something important, just because I didn’t know it existed.”

That last sentence is the right instinct. Most self-employment tax disasters are not caused by people who knew the rules and broke them — they’re caused by people who didn’t know a rule existed until a letter arrived. Here’s the complete first-year checklist, in the order you actually need to do things, so that your first January as a self-employed person is boring instead of terrifying. To see what the actual return looks like filled in, see our Self Assessment tax return example.

The Timeline at a Glance

Before the detail, here’s what your first year looks like on a calendar. Assume you started freelancing during the 2025/26 tax year (any time between 6 April 2025 and 5 April 2026):

When What Why
From day one Start recording every invoice and expense You need these for your tax return — reconstructing them in January is painful
As soon as income approaches £1,000 Decide whether you’ll need to register The £1,000 trading allowance is the threshold
By 5 October 2026 Register for Self Assessment Legal deadline — miss it and you risk a penalty
After you register Wait for your UTR (up to 10 working days by post) You need this to file
After 6 April 2026 File your 2025/26 Self Assessment return You can file as soon as the tax year ends
By 31 January 2027 Pay your tax bill The hard deadline — interest and penalties start after this

The key point: you do not register at the end of the financial year, and you do not wait until January. The registration deadline is 5 October after the tax year ends, and filing opens the day after the tax year ends (6 April). The earlier you do both, the smoother your first January will be.

Step 1: Work Out Whether You Actually Need to Register

Not everyone who does a bit of freelancing needs to register for Self Assessment. The threshold is the £1,000 trading allowance.

According to HMRC’s guidance on tax-free allowances, if your gross self-employment income (total invoiced, before any expenses or deductions) is £1,000 or less in a tax year, that income is tax-free and you do not need to register or file a return.

Once your gross income crosses £1,000 — even by £1 — you need to register and file a Self Assessment return. This is true even if, after the £1,000 allowance and your personal allowance, you end up owing no tax. The registration requirement is triggered by gross income, not by tax due.

The £1,000 is gross, not profit

This trips people up. If you invoice £1,200 for freelance work and have £300 of expenses, your profit is £900 — but your gross income is £1,200, which is over the threshold. You need to register.

When you file, you can choose to either:

  • Claim the £1,000 trading allowance instead of actual expenses (simplest — just deduct £1,000 from your gross income), or
  • Deduct your actual expenses instead of the allowance (better if your expenses are more than £1,000)

You cannot do both. For most first-year freelancers with low expenses, the £1,000 allowance is the better choice. For a deeper comparison, see our trading allowance vs expenses guide. Use our trading allowance calculator to compare both methods instantly.

Other reasons you might need to register

Even if your self-employment income is under £1,000, you may need to register if you:

  • Want to prove you’re self-employed (for Tax-Free Childcare, for example)
  • Want to pay voluntary Class 2 National Insurance to protect your State Pension entitlement (more on this below)
  • Have other reasons to file Self Assessment (untaxed income, capital gains over the allowance, income over £100,000, etc.)

The full list of who needs to file is on HMRC’s check page.

Step 2: Register for Self Assessment — By 5 October

Once you know you need to file, register. The legal deadline is 5 October after the end of the tax year in which you started self-employment. This is confirmed in HMRC’s registration guidance:

“You must tell HM Revenue and Customs by 5 October if you need to complete a tax return for the previous tax year.”

So if you started freelancing during 2025/26 (6 April 2025 – 5 April 2026), you must register by 5 October 2026.

How to register

As a self-employed sole trader, you register online using form CWF1 through your Government Gateway account. You’ll need:

  • Your National Insurance number
  • Your personal details (name, date of birth, address)
  • Your business start date
  • A description of what you do

HMRC will send you a Unique Taxpayer Reference (UTR) by post — this can take up to 10 working days. This is why you should not leave registration until the last minute. Without your UTR, you cannot file your return. If it doesn’t arrive, see our lost UTR guide.

What happens if you register late

If you owe tax and register after 5 October, you can be charged a failure to notify penalty — a percentage of the tax that went unpaid because you didn’t tell HMRC in time. The good news: if you come forward voluntarily (before HMRC finds you), the penalty for a non-deliberate failure can be reduced significantly, potentially to 0% if HMRC is told within 12 months. The bad news: if you wait until HMRC contacts you, the penalty is higher.

For the full breakdown of how this works — and why most low earners owe £0 even if they register late — see our guide on what happens when you didn’t know you had to register.

Should you register now or wait?

Register now. There is no advantage to waiting. The Reddit commenter who suggested “register as soon as your gross turnover hits £1,000” was right — do it as soon as you know you’ll need to file, not at the October deadline. The earlier you register, the earlier you get your UTR, and the more time you have to sort out any issues before January.

Step 3: Keep Records From Day One

This is the single most important habit to build in your first year, and it is the one most people skip because it feels like admin you can “do later.” You cannot do it later — or rather, you can, but it will take five times as long and you will miss things.

HMRC’s guidance on record-keeping for self-employed people is clear: you must keep records of all your business income and expenses. You need these to fill in your tax return, and you must keep them for at least 5 years after the 31 January submission deadline of the relevant tax year.

What to record

For every transaction, capture:

  • Date
  • Amount
  • What it was for (income: which client, which invoice; expense: what you bought and why it was for business)
  • Counterparty (who paid you / who you paid)

For income specifically:

  • Every invoice you issue (numbered, dated, with client name, amount, and what the work was)
  • When each invoice was paid
  • Any business-related payments you receive through PayPal, bank transfer, or any other method

For expenses:

  • Receipts for anything you buy for the business (software subscriptions, equipment, travel to clients, etc.)
  • Bank statements showing the payments

How to record it

You do not need fancy software in your first year, especially if your transaction volume is low. Options, from simplest to most robust:

  1. A spreadsheet — one tab for income, one for expenses. Free, and perfectly adequate if you have fewer than ~100 transactions a year. This is what most first-year freelancers start with.
  2. Bookkeeping software — FreeAgent (free with some NatWest/Mettle business accounts), Account OS (AI accounting for UK micro-businesses), Xero, QuickBooks, Crunch, or ANNA. These categorise transactions, generate reports, and make filing much easier. Worth it once you have regular income.
  3. A receipt-scanning app — if you have lots of small expenses, an app that photographs and categorises receipts saves time.

The format matters less than the habit. Record things as they happen, not in January. For more on what HMRC actually requires — and why an invoice isn’t the only acceptable proof of an expense — see our guide on whether you need an invoice to claim an expense.

Step 4: Open a Separate Bank Account

This is not a legal requirement for sole traders (unlike limited companies, which must have a separate business account). But it is one of the highest-leverage things you can do in your first year.

A separate account — even a free second personal account, or a free sole-trader business account — gives you:

  • A clean record of business income and expenses without having to separate them from your personal spending
  • Easy export of statements if HMRC ever asks questions
  • A psychological separation that stops you from spending business money on personal things (and vice versa)

Several banks offer free or low-cost business accounts for sole traders. Tide is a popular option — a mobile-first business account with no monthly fee, in-app invoicing, and integration with bookkeeping software like Xero and QuickBooks. Other options include Mettle (free, from NatWest), Starling (free, with built-in accounting), and Revolut Business. Shop around — the right choice depends on whether you want a standalone account or one bundled with bookkeeping features.

Do not use your personal credit card for business expenses

It is not illegal, but it creates a mess. Mixing personal and business spending on the same card means you have to go through every statement line by line to identify which transactions are deductible. A separate card (or a separate account with a debit card) saves hours. For more on this, see our guide on using a personal card for business expenses.

Step 5: Set Aside Tax From Every Payment

This is the habit that prevents the most common first-year disaster: getting to January, having a tax bill, and realising you’ve already spent the money.

When you’re employed, tax is deducted from your pay before you see it. When you’re self-employed, you receive the full amount and are responsible for paying the tax yourself. If you do not actively set it aside, it disappears into your general spending and you end up owing money you do not have.

How much to set aside

This depends on your total income, because your self-employment profit is taxed on top of your PAYE salary. Here’s the logic:

  1. Your PAYE salary uses up some or all of your £12,570 personal allowance.
  2. Your self-employment profit is then taxed at your marginal rate:
    • 20% (basic rate) if your total income is under £50,270
    • 40% (higher rate) if your total income is between £50,270 and £125,140
    • 45% (additional rate) above £125,140
  3. You also pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270 (as of 2024/25).

For a basic-rate taxpayer whose PAYE salary uses up their personal allowance, a safe rule of thumb is to set aside 25-30% of self-employment profit (20% income tax + 6% Class 4 NIC + a buffer). If you’re near or above the higher-rate threshold, set aside 40-45%.

Where to put it

A separate savings account or “pocket” (some banks offer these within your main account) that you do not touch until January. Move the money there the same day you receive each payment — not at the end of the month, when it’s already been absorbed into spending.

The Reddit commenter’s advice to “set aside a set % of every payment in a separate bank account or ‘pocket’” was spot on. This is the single most effective habit you can build.

Step 6: Understand National Insurance (It Changed in 2024)

National Insurance for the self-employed changed significantly from 6 April 2024, and the old advice you’ll find online is now wrong. Here’s the current position:

Class 2 NIC — no longer required

From 6 April 2024, no one is required to pay Class 2 NICs. This was confirmed by the National Insurance Contributions (Reduction in Rates) Act 2023. Self-employed people with profits above £12,570 are treated as having paid Class 2 and keep their entitlement to contributory benefits (including the State Pension) without paying anything.

The voluntary Class 2 trap for low earners

If your profits are below £6,845 (the Small Profits Threshold from April 2025), you are not automatically treated as having paid Class 2 — which means you may have gaps in your National Insurance record that could affect your State Pension entitlement. You can choose to pay Class 2 voluntarily (£3.50/week from April 2025) to fill those gaps.

This is particularly relevant for the Reddit poster — a part-time freelancer with a PAYE job. If your PAYE earnings are high enough to give you a full year of NI contributions, you may not need to worry. But if your PAYE work is part-time and your self-employment profits are low, check your National Insurance record to see if you have gaps. This is one of those “things you didn’t know existed” that the poster was worried about missing.

Class 4 NIC — still applies

Class 4 NIC is still due on self-employment profits. The rate was cut to 6% (from 9%) from 6 April 2024, on profits between £12,570 and £50,270. Above £50,270, the rate is 2%. This is calculated automatically when you file your Self Assessment return.

Step 7: Know About Payments on Account (The Second-Year Surprise)

This is the thing that catches almost every newly self-employed person off guard, and it was not mentioned in the Reddit thread at all. If you only read one section of this article, read this one.

What are payments on account?

Payments on account are advance payments towards your next year’s tax bill. HMRC requires them if:

  1. Your last Self Assessment tax bill was more than £1,000, AND
  2. Less than 80% of your tax was collected at source (through PAYE, bank interest deductions, etc.)

Each payment is half of your previous year’s tax bill, and they are due on 31 January and 31 July.

Why your first year is fine — and your second year is not

In your first year of Self Assessment, you do not make payments on account, because HMRC has no prior-year bill to base them on. You simply pay your full tax bill by 31 January. So far, so simple.

In your second year, the system kicks in. On 31 January, you owe:

  • Your full year-two tax bill (the balancing payment), PLUS
  • Your first payment on account for year three (half of your year-two bill)

That is 150% of a normal bill on a single day. If your year-two tax bill is £3,000, you owe £4,500 on 31 January — £3,000 for year two plus £1,500 as the first instalment for year three. Then another £1,500 is due on 31 July.

The 80% escape hatch

If you have a PAYE job that covers most of your tax, you may avoid payments on account entirely. The test is whether 80% or more of your total tax was collected at source. If your PAYE salary accounts for the vast majority of your income and your self-employment profit is small, your PAYE deductions may cover 80%+ of your total tax — in which case, no payments on account.

For the Reddit poster — part-time PAYE plus one day a week freelancing — this is a real possibility. You will not know for certain until you file your first return and see the calculation. But it is worth knowing that the 80% test exists, because it can be the difference between a manageable January and a brutal one.

How to prepare

  • Set aside tax from every payment (Step 5 above) — this covers your first-year bill and builds a buffer for the second-year doubling.
  • After your first tax return, look at the payments on account figure HMRC calculates. If it is large, you now have a year’s notice to save for it.
  • If your income drops, you can apply to reduce your payments on account — but be careful, because if you reduce them too far and your income does not actually drop, you will owe interest on the underpayment.

For the full breakdown, see our payment on account explained guide. If you can’t pay the 31 July instalment, see our what to do if you can’t pay your payment on account action guide.

Step 8: File Early, Not in January

The Reddit commenter’s advice to “file your returns as close to after 6 April as realistically possible” was sound. Here’s why:

  • The payment deadline is always 31 January, regardless of when you file. Filing early does not mean paying early.
  • Filing early gives you the calculation — you know exactly how much you owe, with months to plan for it.
  • Filing early avoids the January rush — HMRC’s systems and helplines are overloaded in late January, and that is when things go wrong.
  • Filing early gives you time to fix mistakes — if you realise you’ve made an error, you have months to amend before the deadline.

You can file as soon as the tax year ends on 5 April. HMRC’s online system opens for the new tax year shortly after. There is no reason to wait.

If you cannot pay by 31 January

If you get to January and you cannot pay your bill, do not ignore it. HMRC offers payment plans (Time to Pay) for bills under £30,000 if you meet the conditions — you can spread the cost over monthly instalments. Interest still accrues, but you avoid the late payment penalties. See our guide on setting up an HMRC payment plan for the process.

The First-Year Checklist (Print This)

  • Track every invoice and expense from day one — spreadsheet or software, your choice, but do it as things happen
  • Open a separate bank account for business income and expenses — not legally required, but saves hours
  • Set aside 25-30% of profit (or 40-45% if near higher-rate) in a separate savings account every time you are paid
  • Check if your gross income exceeds £1,000 — if it does, you need to register
  • Register for Self Assessment by 5 October after the tax year you started — do it earlier if you can
  • Wait for your UTR (up to 10 working days by post) — chase it if it does not arrive
  • Check your National Insurance record — if your profits are under £6,845 and your PAYE is part-time, consider voluntary Class 2 to protect your State Pension
  • File your return as soon after 6 April as you can — not in January
  • Pay your tax bill by 31 January — or set up a Time to Pay plan if you cannot
  • After filing, check whether payments on account apply for next year — if they do, start saving for the 150% January bill now

The Bottom Line

  1. Register by 5 October after the tax year you started — not at the end of the financial year, not in January, and not when HMRC finds you. If your gross self-employment income exceeds £1,000, you need to register.
  2. Keep records from day one. Every invoice, every expense, every receipt. The format matters less than the habit — record things as they happen, not in January.
  3. Set aside tax from every payment. Roughly 25-30% of profit for basic-rate taxpayers, 40-45% for higher-rate. Keep it in a separate account you do not touch.
  4. Your first January is manageable. Your second January is the danger. Payments on account mean your second year can demand 150% of a normal bill on one day. Knowing this now gives you a year to prepare.
  5. Class 2 NIC is no longer required (since April 2024), but if your profits are low and your PAYE is part-time, check your NI record — you may need to pay voluntarily to protect your State Pension.
  6. File early. The payment deadline is 31 January regardless of when you file, so filing early gives you the calculation with months to plan — and avoids the January system overload.

If you’ve already missed the 5 October registration deadline, see our guide on what happens when you didn’t know you had to register. For help understanding Self Assessment terms like UTR, payments on account, and balancing payments, browse our jargon buster. If you’re worried about a tax bill you cannot pay, see setting up an HMRC payment plan. For the full beginner’s overview, see our starting out as self-employed guide.

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