A self-employed tax return can feel daunting, especially when you are staring at income, expenses, accounting methods and tax terminology that you may only deal with once a year.

But the basic job is much simpler when we break it down.

We need to understand what income belongs in the return, which business expenses we can claim, how our accounting method affects the figures and what checks to make before submitting everything to HMRC.

About this episode

Working for yourself gives you control over your time, your customers, your money and the type of business you want to build.

It also comes with responsibilities.

One of those responsibilities is dealing with tax, a task that for many people sits somewhere alongside watching paint dry.

This episode focuses specifically on the self-employment section of Self Assessment for sole traders and freelancers.

It follows our earlier guide to completing the main Self Assessment return. That episode looks at the wider return. Here, we concentrate on the business numbers that self-employed people need to report.

Who counts as self-employed for this tax return?

In this context, we are talking about individuals who run a business personally.

You may describe yourself as a sole trader, freelancer or self-employed business owner.

A limited company is different. A company has its own corporation tax and company reporting responsibilities, so this episode is not about completing a Company Tax Return.

The self-employment section of Self Assessment is where we report the relevant income, expenses and profit from the business that you operate personally.

Choose how you calculate your business profit

Before entering the numbers, we need to understand the accounting method behind them.

The two main approaches are cash basis and traditional accounting.

Cash basis

Cash basis looks mainly at when money actually comes into or leaves the business.

Imagine you complete a job in March and invoice the customer immediately, but they do not pay you until April.

Under cash basis, the income is normally recorded when you receive the money.

From the 2024/25 tax year, cash basis became the default method for most eligible self-employed businesses.

Traditional accounting

Traditional accounting records income and expenses according to when they are earned or incurred rather than simply when the cash moves.

Using the same example, the March invoice would normally belong to the period in which you earned that income, even if the customer pays later.

You can still use traditional accounting if you choose to opt out of cash basis or if cash basis does not apply to your circumstances.

The important thing is to know which method you are using before you start entering figures.

Your profit is now reported on a tax-year basis

Another important change since the original episode was recorded is the tax-year basis.

From 2024/25 onwards, self-employed trading profits are taxed according to the profits arising in the tax year itself.

The UK tax year runs from 6 April to 5 April.

You can still prepare business accounts to another date, but if your accounting period does not line up with the tax year, the profits may need to be apportioned so the correct amount falls into the relevant tax year.

For many sole traders, using 31 March or 5 April as the accounting year end keeps things relatively straightforward.

What goes into a self-employed tax return?

Once the accounting method is clear, we can start looking at the actual business information.

The return needs enough information to work out the taxable profit from your self-employment.

That normally starts with your business income and then deducts the allowable business costs.

Your business turnover

Turnover is the income generated from selling your goods and services before deducting your business expenses.

It is not the same thing as profit.

If you use cash basis, the timing of turnover normally follows when you receive the money. Under traditional accounting, the timing follows when the income is earned.

Make sure you include the relevant business income and do not simply copy the amount that happens to be sitting in your bank account at the end of the year.

Your allowable business expenses

Next, we look at the costs of running the business.

Typical allowable expenses may include:

goods and materials bought for resale or production
business travel and vehicle costs
staff and freelancer costs
business premises costs
working-from-home costs
repairs and maintenance
accountancy and other professional fees
business bank charges and interest
telephone, internet and office costs
advertising, software and other business running costs

The important phrase here is business cost.

If something has both personal and business use, we claim only the business part.

For example, imagine your annual mobile phone cost is £600 and you estimate that 80% relates to genuine business use.

The business amount would be £480, not the whole £600.

This principle applies across many mixed-use expenses.

Do not claim your own drawings as an expense

This catches people out.

If you are a sole trader and transfer money from the business to yourself, that is normally a drawing.

It is not a wage paid to an employee and it does not reduce your taxable business profit.

You may call the transfer your wages in everyday conversation, but for tax purposes it is simply money you have taken out of your own business.

So do not include your personal drawings as an allowable business expense.

Claiming for working from home

If you run part or all of your business from home, you may be able to claim an appropriate amount of your household costs.

One approach is to calculate the actual business proportion of relevant costs.

Alternatively, eligible self-employed people can use simplified expenses, which use flat rates rather than asking you to calculate the precise business share of certain household costs.

Whichever method you use, keep it reasonable and connected to genuine business use.

What about equipment and other business assets?

Equipment needs a little more care because the treatment can depend on the accounting method you use.

Under cash basis, most equipment you buy and keep for the business is normally dealt with as an allowable expense. Cars are treated differently and capital allowances may apply.

If you use traditional accounting, qualifying equipment such as computers, tools and machinery may instead be dealt with through capital allowances.

Mixed business and personal use still matters.

If an asset is only 80% for business, we should not automatically claim 100% of the cost.

Making Tax Digital for Income Tax

There is another major change to self-employed tax reporting that did not exist when this episode was originally recorded.

Making Tax Digital for Income Tax started applying from 6 April 2026 to some sole traders and landlords.

If your qualifying income shown on your 2024/25 tax return was more than £50,000, you generally need to use Making Tax Digital for Income Tax from April 2026.

The rollout continues in stages:

qualifying income over £50,000: from 6 April 2026
qualifying income over £30,000: from 6 April 2027
qualifying income over £20,000: from 6 April 2028

Qualifying income broadly means your gross income from self-employment and property before deducting expenses.

If Making Tax Digital applies to you, you need compatible software to keep digital records and send quarterly updates to HMRC.

You still need to complete the year-end tax process and pay any tax due.

Good records make the return much easier

The quality of the tax return starts long before you log in to submit it.

Good records tell us what the business earned, what it spent and what evidence supports those numbers.

Keep invoices, receipts and other records supporting the figures in your return.

Self-employed business records normally need to be kept for at least five years after the relevant 31 January Self Assessment submission deadline.

That does not mean we should keep a shoebox of paper and hope for the best.

A decent bookkeeping system gives you better information throughout the year and makes the tax return far less painful when the deadline arrives.

Check the return before you submit it

Once the numbers are entered, do not immediately press submit.

Review the turnover.

Look at the expense totals.

Check the business and personal proportions.

Make sure you have not included drawings as wages.

Check that the accounting method and tax year are correct.

If anything looks unusual, investigate it before submitting the return.

Our guide to common tax return mistakes covers several other areas worth checking.

What happens after you submit?

Submitting the return is only part of the job.

You also need to understand what tax is due and when you need to pay it.

Your Self Assessment calculation may also include payments on account towards the following year’s tax bill.

If they apply to you, our guide to Payments on Account Explained shows how they work.

If you are worried that you cannot pay what you owe, deal with the problem early rather than ignoring HMRC until the deadline passes.

A simple self-employed tax return checklist

Get your records together. Make sure your income and expenses are up to date.
Confirm your accounting method. Know whether you are using cash basis or traditional accounting.
Work out the correct tax-year profit. Take account of the tax-year basis if your accounts use a different year end.
Check your turnover. Include the correct business income.
Review allowable expenses. Claim genuine business costs and restrict mixed-use costs appropriately.
Leave drawings out of expenses. Money you take personally is not a deductible wage.
Check equipment and capital costs. Make sure you use the correct treatment for your accounting method.
Check whether Making Tax Digital applies. Use compatible software where required.
Review before submitting. Look for missing, duplicated or unusual figures.
Plan for the tax payment. Check the amount due and any payments on account.

FAQs

What is a self-employed tax return?

A self-employed tax return is the Self Assessment process used to report your personal tax position together with the income, expenses and taxable profit from a business you operate as a sole trader or freelancer.

Is cash basis now the default for self-employed businesses?

Yes, from the 2024/25 tax year cash basis became the default accounting method for most eligible self-employed businesses. You can opt for traditional accounting instead where appropriate.

Can I claim the full cost of something I also use personally?

Usually not. Where an expense has both business and personal use, you generally claim only the business proportion.

Can I claim money I pay myself as an expense?

No. A sole trader’s drawings are not an allowable business wage. Taking money from the business does not reduce the taxable profit.

Do I need Making Tax Digital for Income Tax?

It depends on your qualifying income. From April 2026 it applies to people whose 2024/25 qualifying income exceeded £50,000, with lower qualifying-income thresholds being introduced in later years.

How long should I keep self-employed tax records?

You normally need to keep your business records for at least five years after the 31 January submission deadline for the relevant tax year.

Episode Timecodes

00:00 – The responsibility of preparing a self-employed tax return
01:46 – What this episode covers
02:23 – The main return and self-employment section
02:54 – Who counts as self-employed
03:38 – Traditional accounting versus cash basis
06:08 – Choosing the accounting method and business details
08:33 – Reporting turnover
09:21 – Claiming business expenses
11:16 – Drawings and working from home
12:40 – Professional fees, bank charges and mixed-use costs
13:17 – Business equipment and capital assets
14:58 – Submitting the return and paying the tax
15:25 – Self-employed tax return summary

Related episodes and guides

Key takeaway

A self-employed tax return becomes much easier when the underlying business records make sense.

Know which accounting method you are using, report the correct turnover, claim the business expenses you are entitled to and keep personal spending out of the calculation.

Remember that the rules have changed since the original episode was recorded. Cash basis is now the default for most eligible businesses, profits are reported on the tax-year basis and Making Tax Digital now applies to some self-employed people.

Get the records right first, and the tax return becomes a much more manageable job.

Plan it, Do it, Profit.

Further Support

If you need help preparing your Self Assessment, understanding your business expenses or working out which accounting method suits your business, you can contact us for an initial chat.

You can also use our free online business calculators to support your tax and business planning.

For more practical finance and tax support, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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Self-Employed Tax Return: What Sole Traders Need to Report