Going Self-Employed: Your First-Year Tax Checklist

Register with HMRC — and know your deadline

When you start trading, HMRC does not automatically know. You must register for self assessment by 5 October following the end of the tax year in which you started. Start trading in September, for example, and you have until 5 October the following year — but registering early costs nothing and avoids the last-minute scramble for activation codes.

One useful exception: if your total self-employment income for the year is under the £1,000 trading allowance, you may not need to register or file at all. That covers genuine side-hustles — but the moment income passes £1,000, self assessment applies, and you then choose between deducting the £1,000 allowance or your actual expenses, whichever is better.

Set up your money properly from day one

• Open a separate business bank account — mixing business and personal transactions is the single biggest cause of bookkeeping misery
• Set aside roughly 25–30% of your profit for tax as you earn it, in a separate savings pot you do not touch
• Use cloud bookkeeping software from the start — photographing receipts and categorising as you go beats a year-end shoebox, and prepares you for Making Tax Digital
• Keep records of everything: invoices, receipts, mileage, bank statements — HMRC can ask to see them for years afterwards

The percentage you set aside is deliberately generous for most first-year traders. It is far better to discover in January that you saved slightly too much than slightly too little.

The payments on account shock

Here is the trap that catches almost every successful first-year trader. Your first tax bill, due by 31 January after the tax year ends, is not just the tax on your first year. If the bill exceeds £1,000, HMRC also asks for your first payment on account — an advance of half next year’s estimated tax — on the same day, with the second half due by 31 July.

In cash terms, your first January can cost one-and-a-half times the tax you expected. If you have not budgeted for it, a good first year turns into a bad first February. Knowing the number months in advance — by filing early — is the only real defence.

Watch the VAT threshold as you grow

VAT registration becomes compulsory when your taxable turnover over any rolling twelve months exceeds the threshold (currently £90,000) — not your profit, and not measured by tax year. A strong first year can carry you over it faster than you expect, and registering late means paying VAT you never charged, plus penalties.

Check your rolling twelve-month turnover at each month end once you are anywhere near the threshold. In some cases registering voluntarily before you must — for example, if your customers are VAT-registered businesses — actually saves money; that is worth a conversation before you decide.

Do not do year one alone

Your first year sets the patterns — good records, the right expense claims, a realistic tax pot and no missed deadlines — and it is far easier to start right than to unpick a messy first year later. An accountant typically saves a new trader more than their fee in the first year alone, between missed expenses and avoided penalties.

Bayar Hughes & Co, chartered certified accountants in New Eltham, London SE9, has helped people go self-employed since 1991. We will register you with HMRC, set up your bookkeeping, tell you exactly what to set aside, and file your first return without drama. Call +44 7441 347796 before your first January, not after it.