Introduction to Self-Employment in the UK
If you wish to start your own business or work as a freelancer in the UK, the most common way to begin is by registering as a sole trader. This means you are the sole owner of your business and are personally responsible for its debts and legal obligations.
Registering as a Sole Trader with HMRC
If your gross income from self-employment exceeds £1,000 in a tax year, you must register for Self Assessment with HM Revenue and Customs (HMRC).
How to Register
- Online: Use your HMRC business tax account via the Government Gateway. If you do not have a Government Gateway ID, you will need to create one and verify your identity.
- By Post: Complete form CWF1 and mail it to HMRC.
- By Phone: Use the HMRC self-assessment helpline if you cannot access digital or postal methods.
Requirements for Registration
To complete the process, ensure you have the following ready:
- Your National Insurance (NI) number.
- Full home address and the date you moved in.
- Date of birth and contact details.
- The date your business activity started and a description of your services.
- A business address and phone number (this can be your home address).
After registration, HMRC will send you a ten-digit Unique Taxpayer Reference (UTR) number. Keep this safe, as it is required for all future tax returns.
Self Assessment and Key Deadlines
Self Assessment is the system used to report your annual income and pay the relevant tax.
Essential Deadlines
- Registration: You must register by 5 October following the end of the tax year in which you started trading. For example, if you start in June 2026, the deadline is 5 October 2027.
- Filing and Payment: Online tax returns and payments are generally due by 31 January after the tax year ends.
- Paper Returns: If you file by post, the deadline is 31 October.
Making Tax Digital (MTD)
Starting April 2026, sole traders and landlords with a turnover exceeding £50,000 must maintain digital records and submit quarterly updates to HMRC under the Making Tax Digital (MTD) regime.
Record Keeping and Business Expenses
You pay income tax on your trading profits (total income minus allowable business expenses).
Allowable Expenses
- Actual Expenses: You can deduct legitimate business costs, such as office equipment, professional software, and business-related travel.
- Trading Allowance: Alternatively, you can claim a flat £1,000 allowance. Use this if your actual expenses are less than £1,000.
What Records to Maintain
Keep accurate logs of all financial activity, including:
- All invoices issued and receipts received.
- Bank statements specifically for business transactions.
- A detailed log of business mileage.
- Records of any "payments on account" made to HMRC.
National Insurance (NI) for the Self-Employed
NI contributions ensure you qualify for state benefits and the State Pension.
Contribution Classes (2026/27 Estimates)
- Class 2: A flat weekly rate, often voluntary for those with low profits, to protect your NI record.
- Class 4: Based on annual profits. Generally, 6% on profits between £12,570 and £50,269, and 2% on profits above £50,270.
Sole Trader vs. Limited Company
| Feature | Sole Trader | Limited Company (Ltd) |
|---|---|---|
| Setup | Simple and fast | More complex registration |
| Liability | Personally liable for debts | Limited liability (protected assets) |
| Tax | Income Tax on profits | Corporation Tax on profits + Dividends |
| Admin | Low administrative burden | Higher (Annual accounts to Companies House) |
Important Considerations for Iranians
Visa Restrictions
Before registering, review your visa conditions. Some visas (e.g., Skilled Worker) may prohibit self-employment or restrict it to "supplementary employment" (max 20 hours/week in a similar professional level). Ensure you have the legal right to freelance to avoid breaching your visa terms.
Banking and Credit History
Opening a business bank account can be challenging without a UK credit history. Digital banks such as Monzo, Revolut, or Starling are often faster for freelancers to set up and provide the necessary UK account details for invoicing.
Professional Recognition
If your work relies on Iranian certifications (e.g., engineering or accounting), check if they are recognized. You may need an equivalency process via ENIC (European Network for Information Centres) to justify professional rates.
