Tax guide
Tax for independent recruitment consultants: a practical guide.
Moving from PAYE employment to self-employment involves a different relationship with HMRC. This is what you need to know before you make the move.
General information only
This guide provides general information about self-employment tax in the UK. It is not professional tax advice and does not take into account your individual circumstances. Tax rules change and the figures in this guide reflect the 2025/26 tax year. Always speak to a qualified accountant or tax adviser about your specific situation before making financial decisions.
The overview
What changes when you move from PAYE to self-employment.
As an employee, your Income Tax and National Insurance are deducted by your employer before you’re paid. You receive your net salary, and your tax affairs are largely invisible. For a full picture of what going independent involves, including the practical steps, see our guide.
As a self-employed consultant, the same taxes apply, but the administration is yours. You receive your gross earnings and you’re responsible for setting aside and paying your own tax. HMRC doesn’t automatically know what you’ve earned; you tell them each year through a Self Assessment tax return, and you pay any tax owed at that point.
This is a bigger mental shift than it is a practical one. The mechanics of self-assessment are not complicated. But they do require you to pay attention to your finances, keep records, and set aside money throughout the year so you’re not caught short when the bill arrives.
What you need to do:
- Register as self-employed with HMRC (if not already registered)
- Keep records of your income and allowable expenses
- File a Self Assessment tax return by 31 January each year
- Pay any tax owed by 31 January (and payments on account if applicable)
- Pay your National Insurance contributions
The tax rates
What you pay HMRC, and at what rates.
The tax rates for self-employed individuals are the same as those for employees. The difference is in how and when you pay. See what you would earn at different billing levels before tax.
Income Tax (2025/26 tax year):
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Note: The Personal Allowance reduces by £1 for every £2 above £100,000. Above £125,140, there is no personal allowance.
National Insurance for self-employed: Self-employed individuals pay Class 4 NI on profits between £12,570 and £50,270 at 6%, and 2% on profits above £50,270. You may also pay a small amount of Class 2 NI if your profits exceed the Small Profits Threshold. This is less NI than an employee and employer combined would pay on the same income.
A worked example:
A consultant earning £127,500 gross (85% of £150,000 billing) in 2025/26, after allowable expenses of £5,000:
| Taxable profit | £122,500 |
| Tax at 20% (up to £50,270) | ~£7,540 |
| Tax at 40% (above £50,270) | ~£28,900 |
| Class 4 NI | ~£3,740 |
| Approximate total tax and NI | ~£40,180 |
| Approximate net income | ~£82,300 |
This is illustrative only. Your actual tax position depends on your specific circumstances, expenses, and any other income you have. Get an accountant to calculate your specific position.
Filing your return
The Self Assessment calendar.
| Date | What happens |
|---|---|
| 5 April | End of the tax year |
| 6 April | Start of the new tax year |
| 5 October | Deadline to register for Self Assessment (if new to it) |
| 31 October | Deadline for paper Self Assessment returns |
| 31 January | Deadline for online returns AND payment of tax owed |
On 31 January, you pay the tax owed for the previous tax year plus the first payment on account toward the current tax year. This can be a large sum if you haven’t set money aside throughout the year. The most common mistake new self-employed consultants make is not planning for this payment.
Allowable expenses
What you can deduct from your taxable income.
As a self-employed consultant, you can deduct allowable business expenses from your income before calculating tax. The key test: an expense must be incurred wholly and exclusively for business purposes.
| Expense | Notes |
|---|---|
| Accountancy fees | Fully deductible |
| Professional subscriptions (e.g. REC, APSCo) | Fully deductible |
| LinkedIn Premium / Recruiter licence | Business use portion deductible |
| Job board subscriptions | Fully deductible if for business use |
| Home office costs | Proportion of heating, electricity, broadband if working from home |
| Business travel | Train, mileage (HMRC rates apply), hotels for business trips |
| Professional indemnity insurance | Fully deductible |
| Training and development | If directly relevant to your current work |
| Business phone | Business use proportion |
| Computer and equipment | Either claimed as expense or capital allowance |
| Relevant books and publications | If directly relevant to your business |
Planning your payments
The payment most new self-employed consultants aren’t prepared for.
Payments on account are the element of self-employment tax that catches most people off-guard in their first year. When you file your first Self Assessment return, HMRC asks you to pay 50% of that year’s tax bill in advance as the first instalment toward the current year’s tax. The second instalment is due the following 31 July.
If your Year 1 tax bill is £40,000, your first January payment is £60,000 (£40,000 tax owed plus £20,000 payment on account for Year 2). The remaining £20,000 on account is due in July.
This is not a penalty. It’s simply HMRC collecting tax in advance rather than in arrears. It levels out from Year 2. But in the first year, it can be a significant cash flow event if you haven’t planned for it.
The solution: Set aside approximately 30 to 35% of every payment you receive for tax. Keep it in a separate account and don’t spend it. An accountant can give you a more accurate figure for your specific situation.
Professional support
What a good accountant does for you, and what it costs.
Most independent recruitment consultants benefit significantly from having an accountant, particularly in the first year. Look for an accountant who specifically works with contractors, freelancers, and self-employed professionals in your income range.
Ask specifically: “Do you work with self-employed recruitment consultants?” and “What do you charge and what does that cover?”
For a self-employed consultant, expect to pay £500 to £2,000 a year depending on the complexity of your affairs. This is fully deductible as a business expense. The cost is almost always more than recovered through legitimate tax savings you wouldn’t have identified yourself.
We have preferred accountancy suppliers who work with consultants in this position. We’re happy to make introductions.
Questions we hear often
Tax questions from consultants making the move.
When do I need to register for Self Assessment?
Register by 5 October following the end of the first tax year in which you earned self-employment income. If you start working independently in May 2025 (in the 2025/26 tax year), register by 5 October 2026. It’s better to register as soon as you start.
Do I need to register for VAT?
You must register for VAT if your taxable turnover exceeds the current VAT registration threshold (£90,000 in 2025/26) in a rolling 12-month period. Most recruitment placement fees are VATable. If you are close to or above this threshold, register proactively. Unknown Potential handles VAT on invoices through the platform’s invoicing workflow.
What if I was employed for part of the year?
Your Self Assessment return covers all income from all sources in the tax year: employment income (shown on a P60 or P45) and self-employment income. You report both and your tax is calculated on the total. If your employer deducted PAYE, this is credited against your total tax bill.
Can I contribute to a pension and reduce my tax bill?
Yes. Pension contributions via a private pension (SIPP or personal pension) are eligible for tax relief. For a higher-rate taxpayer, for every £60 you put in, HMRC adds £40, making the total pension contribution £100. Speak to a financial adviser about your specific situation.
What records do I need to keep?
HMRC requires you to keep records for at least five years after the 31 January filing deadline for the relevant tax year. You need records of all income received, all allowable expenses claimed, and any capital purchases. In practice: invoices, receipts, bank statements, and payslips. Accounting software (Xero, FreeAgent, QuickBooks) makes this straightforward.
What happens if I get it wrong?
HMRC has a process for correcting mistakes. You can amend a Self Assessment return within 12 months of the filing deadline. Honest mistakes handled promptly are generally treated differently from deliberate non-compliance. A good accountant keeps the risk of significant errors low.
How does Making Tax Digital affect me?
Making Tax Digital for Income Tax (MTD for ITSA) is being introduced by HMRC to require self-employed individuals above certain income thresholds to submit quarterly updates using compatible software. Check HMRC’s current guidance on when this applies to your income level, as the rollout timeline has changed multiple times.
What about National Insurance for my contractors?
If you run a contract desk and your contractors are self-employed, they manage their own NI. If they are employed (PAYE contractors), their employer NI is handled by Unknown Potential’s payroll function.
Ready to talk through the financial picture?
Book a conversation. We’ll go through the numbers with you.
Tax is one of the things that most consultants worry about before making the move, and one of the things they’re least worried about once they’re set up. If you’re thinking about making the move, the first step is a conversation with us. We can walk you through what your earnings would look like, connect you with preferred accountancy suppliers, and give you a clear picture of what independence would mean financially. Read about what the onboarding process looks like.