UK Payroll and Taxes for Self-Employed Individuals in 2026: The Ultimate Guide

If you are self-employed in the UK, you usually do not run payroll for yourself. Most sole traders and partners pay tax through Self Assessment, not PAYE, and take money out of the business as drawings rather than a salary.

Payroll only becomes relevant if you employ staff. In that case, you still pay your own tax through Self Assessment, but you must also run PAYE payroll for your employees, report pay to HMRC in real time, and handle pension duties, if they apply.

This guide explains the current 2026/27 tax-year rules, including Income Tax, National Insurance, Self Assessment deadlines, Making Tax Digital for Income Tax, and what changes when you hire staff or contractors.

What Does Self-Employed Payroll Mean In Practice?

For most self-employed people, “payroll” is really about keeping records, filing tax returns, and setting money aside for HMRC. It is not about putting yourself through PAYE.

The main rules are:

• Sole traders and partners pay tax through Self Assessment on taxable profit, not on drawings.
• Drawings are not a business expense. Taking money out of the business does not reduce your tax bill.
• Limited company owners are not self-employed for tax purposes, even if they are the owner and only worker in the business.
• If you employ staff, you must run payroll for them, even if you stay self-employed for your own tax position.

That distinction matters because a lot of self-employed tax mistakes start with treating personal withdrawals like wages, or assuming business owners only need payroll software when what they really need is bookkeeping and tax software.

If you are hiring for the first time, read our guide to doing payroll yourself.

What Taxes Do Self-Employed People Pay in 2026/27?

If you are self-employed, the main taxes are usually Income Tax and Class 4 National Insurance. You may also need to think about voluntary Class 2, student loan repayments and VAT.

For England, Wales and Northern Ireland, the main Income Tax and Class 4 National Insurance rates for 2026/27 look like this:

Scottish Income Tax bands are different, so if you live in Scotland you should check the current Scottish rates before budgeting.

A few other 2026/27 points matter just as much:

• If your profits are below £7,105, you do not have to pay National Insurance, but you can choose to pay voluntary Class 2 contributions at £3.65 a week to help protect your State Pension record.
• If your profits are £7,105 or more, Class 2 is treated as having been paid, so you normally do not need to pay it separately.
• Your Personal Allowance reduces by £1 for every £2 of adjusted net income above £100,000, and disappears completely at £125,140.
• The trading allowance is still £1,000. If your annual gross trading income is £1,000 or less, you may not need to tell HMRC, although exceptions apply.
• If you use the trading allowance, you cannot also claim expenses for the same income source.
• You may need to register for VAT once your taxable turnover goes above £90,000 in a 12-month period.

As a practical rule of thumb, many sole traders set aside around 25% to 30% of profits if they expect to stay within the basic-rate band, and more if they also have employment income, student loans or profits that push them into higher-rate tax. That is not a tax rule, but it is a useful budgeting habit.

Which Dates Matter in 2026/27?

The key self-employed deadlines in the current tax year are straightforward once you separate Self Assessment, Making Tax Digital and employer payroll.

Self Assessment deadlines

• 31 July 2026 — second payment on account for the 2025/26 tax year
• 5 October 2026 — deadline to tell HMRC you need to complete a tax return for 2025/26 if you have not registered before
• 31 October 2026 — paper tax return deadline for 2025/26
• 31 January 2027 — online tax return deadline for 2025/26, plus your balancing payment and first payment on account for 2026/27

Making Tax Digital for Income Tax deadlines

• 6 April 2026 — MTD for Income Tax becomes mandatory for sole traders and landlords with qualifying income above £50,000
• 7 August 2026 — first quarterly update deadline
• 7 November 2026 — second quarterly update deadline
• 7 February 2027 — third quarterly update deadline
• 7 May 2027 — fourth quarterly update deadline
• 31 January 2028 — final tax return for 2026/27 through MTD-compatible software, and tax due

If your qualifying income was over £30,000 for the 2025/26 tax year, you will need to start using MTD from 6 April 2027. If it was over £20,000 for the 2026/27 tax year, your start date is 6 April 2028.

One useful 2026/27 concession: HMRC says it will not apply penalty points for late quarterly MTD updates in the first mandated tax year. Late tax returns and late tax payments can still trigger penalties.

If you employ staff

• On or before every payday — send your Full Payment Submission (FPS) to HMRC
• By the 19th of the following tax month — send an Employer Payment Summary (EPS) if you need to claim reductions or if you paid no employees in a tax month
• By the 22nd of the month — pay HMRC what you owe electronically, or by the 19th if paying by post
• By 31 May — give employees their P60s
• By 6 July — file P11D and P11D(b) where required
• By 22 July — pay Class 1A National Insurance electronically, or by the 19th if paying by cheque

How To Handle Your Own Tax as a Sole Trader or Partner

The simplest way to stay compliant is to treat tax as a year-round admin process, not a January panic.

1. Register and choose your accounting method

Register for Self Assessment once you know you need to file. If you started self-employment in the 2025/26 tax year and have not told HMRC yet, your registration deadline is 5 October 2026.

For most sole traders and eligible partnerships, cash basis is now the default accounting method. That means you record income when you receive it and expenses when you pay them. You can still use traditional accounting if it suits your business better.

2. Track income and expenses properly

You pay tax on profit, so your records matter. Keep:

• Sales invoices and payment records
• Business bank statements
• Receipts for allowable expenses
• Loan, mileage and home-working records, where relevant

Allowable expenses can include:

• Office costs, such as stationery and phone bills
• Travel costs, such as fuel, parking or train fares
• Staff costs, such as wages and subcontractor costs
• Business premises costs, such as heating, lighting and business rates
• Advertising and marketing
• Training courses related to your business

You can also use simplified expenses for some vehicle costs, working from home and living at your business premises. Keep in mind that you cannot use the trading allowance and claim expenses for the same income source.

If you file on time, you should usually keep self-employed tax records for at least 22 months after the end of the tax year.

3. File through Self Assessment or MTD

If you are not yet in MTD for Income Tax, you will file the usual way through Self Assessment. If you are in scope for MTD, you must keep digital records and submit through compatible software.

One important point many guides miss: HMRC does not provide MTD for Income Tax software. If you need MTD, you will need to choose your own software or use an agent. The safest route is to check HMRC’s software list before you sign up.

4. Pay your bill and plan ahead

Your main payment date is usually 31 January. If you are in payments on account, you will normally also pay on 31 July.

If you want to smooth the cost, HMRC lets you set up a Budget Payment Plan to pay weekly or monthly towards your next bill. If you cannot pay on time, you may be able to set up a Time to Pay arrangement instead.

For Self Assessment debts, HMRC says online payment plans are often available if:

• You have already filed your return
• You owe up to £30,000
• You are within 60 days of the payment deadline

If you owe more or need longer to pay, you can still ask HMRC for a payment plan, but you will usually need to contact them directly.

What Changes if You Employ Staff or Contractors?

Once you start paying other people, the rules split quickly between employees and contractors. That distinction matters because payroll, pensions and tax reporting all depend on employment status.

If you employ staff

If someone is an employee, you usually need to:

• Register as an employer with HMRC before your first payday
• Run PAYE payroll
• Send a FPS on or before payday
• Deduct tax, National Insurance and pension contributions where required
• Assess automatic enrolment duties from the day your first staff member starts work
• Pay at least the current National Minimum Wage or National Living Wage

From 1 April 2026, the main minimum wage rates are:

• £12.71 for workers aged 21 and over
• £10.85 for workers aged 18-20
• £8.00 for workers aged 16-17
• £8.00 for apprentices who qualify for the apprentice rate

If you pay contractors

Genuine self-employed contractors are usually paid against invoices, not through payroll. But do not assume someone is self-employed just because they call themselves a freelancer.

If you are unsure, use HMRC’s CEST tool to check employment status for tax. Getting this wrong can create PAYE and National Insurance problems later.

If you work in construction, the Construction Industry Scheme (CIS) can change how payments work:

• Contractors deduct money from subcontractor payments and pass it to HMRC.
• Those deductions count as advance payments towards the subcontractor’s tax and National Insurance.
• Subcontractors still need to file Self Assessment and claim credit for deductions.

If you are reaching the point where payroll is taking too much time, compare payroll outsourcing costs before you decide whether to keep everything in-house.

Which Tools Help Self-Employed People Stay Organised?

If you do not employ staff, you usually need bookkeeping and tax software more than payroll software. The right tool should help you keep records, track expenses, prepare for Self Assessment or MTD, and see your tax position before deadlines land.

Useful options include:

• QuickBooks for invoicing, expense tracking, and small-business accounting — further reading: QuickBooks Payroll pricing
• Xero for cloud accounting and broader bookkeeping workflows — further reading: Xero Payroll pricing
• Sage for businesses that want payroll and finance tools in a more established stack — further reading: Sage Payroll costs

If you do employ staff, our guide to payroll software is a better starting point.