Navigating the New Tax Year: A Comprehensive Guide for UK Freelancers (2025-2026)

National Insurance Contributions for the Self-Employed

In addition to Income Tax, most freelancers are required to pay National Insurance Contributions (NICs). These contributions go towards funding various state benefits. The two primary classes of NICs relevant to self-employed individuals are Class 2 and Class 4.  

Class 2 NICs are a flat weekly rate. While the exact rate for the 2025-2026 tax year will be confirmed closer to the time, the 2024-2025 rate was £3.45 per week. These contributions are payable if a freelancer's profits exceed the Small Profits Threshold (SPT). For the 2025-2026 tax year, the SPT will increase from £6,725 to £6,845 per year. This adjustment means that some freelancers with slightly higher earnings may become newly liable for Class 2 NICs, or those already paying might see a minor increase in their overall contribution.

Class 4 NICs are calculated as a percentage of a freelancer's taxable profits that fall above a certain threshold. For the 2025-2026 tax year, the rates and thresholds are expected to be similar to the previous year. Based on available information, Class 4 NICs are likely to be 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. It's important to note that both employees and self-employed individuals generally do not need to pay NICs until their annual earnings exceed £12,570, which aligns with the Personal Allowance for Income Tax. This alignment simplifies the understanding of when tax obligations begin.  

Navigating VAT as a Freelancer

Value Added Tax (VAT) is a consumption tax levied on most goods and services supplied in the UK. Freelancers are required to register for VAT if their VAT-taxable turnover exceeds a certain threshold. As of April 1st, 2024, the VAT registration threshold increased to £90,000. This means that if a freelancer's taxable turnover in a rolling 12-month period goes above this amount, they must register for VAT. There is also a VAT deregistration threshold of £88,000, below which a business can apply to deregister. The standard rate of VAT in the UK is 20%.  

VAT-registered freelancers are required to submit VAT returns and make payments to HMRC regularly, typically quarterly. For the 2025-2026 tax year, the quarterly VAT return periods and their corresponding payment deadlines would generally be:  

• Quarter 1: Period ending March 31st, 2025 – Payment due May 7th, 2025.

• Quarter 2: Period ending June 30th, 2025 – Payment due August 7th, 2025.

• Quarter 3: Period ending September 30th, 2025 – Payment due November 7th, 2025.

• Quarter 4: Period ending December 31st, 2025 – Payment due February 7th, 2026 (note that if the 7th falls on a weekend, the deadline is usually the next working day ).  

For businesses with a turnover less than £1.35 million, there is also the option to use the VAT Annual Accounting Scheme, which allows for VAT to be paid once a year in advance. VAT-registered freelancers must comply with Making Tax Digital (MTD) regulations, which require digital record-keeping and submission of VAT returns through MTD-compatible software. The increase in the VAT registration threshold to £90,000 provides greater flexibility for some freelancers regarding VAT registration. However, those who are VAT-registered must remain diligent in meeting the quarterly deadlines and adhering to MTD requirements, as this necessitates ongoing administrative effort and accurate record-keeping.  

Key Tax Changes to Be Aware Of in 2025-2026

Several notable tax changes are set to take effect in the 2025-2026 tax year, which freelancers should know. While freelancers do not directly pay employer National Insurance on their own income, those who employ staff will see an increase in the rate of employer (secondary) Class 1 NICs from 13.8% to 15%. Additionally, the Secondary Threshold, which is the point at which employers become liable to pay these contributions, will decrease from £9,100 to £5,000 per year. This combination of a higher rate and a lower threshold will likely increase employment costs for many businesses. However, there is also an increase in the Employment Allowance from £5,000 to £10,500, and the £100,000 eligibility cap for this allowance will be removed, which could help smaller employers offset some of these rising costs.  

For freelancers considering the disposal of business assets, the Capital Gains Tax (CGT) rate for Business Asset Disposal Relief (formerly known as Entrepreneurs' Relief) and Investors' Relief will increase from 10% to 14% for disposals made on or after April 6th, 2025. This change will reduce the net proceeds from such sales, making the timing of asset disposals a vital consideration.  

Another significant change is the abolition of the Furnished Holiday Lettings (FHL) tax regime from April 6th, 2025. This will remove the specific tax advantages and separate reporting requirements that previously applied to individuals, companies, and trusts operating or selling FHL accommodation. Freelancers who operate in this sector will need to understand the new tax implications for their income from holiday lettings. Furthermore, the late payment interest rate that HMRC charges on unpaid tax liabilities will increase from April 6th, 2025, emphasizing the importance of meeting tax deadlines to avoid higher penalties.  

Finally, it is worth noting that there is a potential future change. The government has announced a possible increase in the Income Tax Self Assessment (ITSA) reporting threshold from £1,000 to £3,000 gross within the current parliament. If this change is implemented, it could mean that up to 300,000 taxpayers, including some freelancers with lower levels of self-employment income, may no longer be required to file a tax return. This potential simplification could significantly reduce the administrative burden for many individuals with smaller side incomes.  

Maximising Allowances and Planning Your Taxes

To manage their tax obligations effectively, freelancers should ensure they are taking advantage of all available allowances and reliefs. As previously mentioned, the Personal Allowance for the 2025-2026 tax year is £12,570, and the Trading Allowance provides a tax-free amount of up to £1,000 for self-employment income. Beyond these, freelancers can also deduct allowable business expenses from their income, which can significantly reduce their taxable profit. These expenses can include costs such as office supplies, travel expenses, equipment, and professional fees. Maintaining detailed records of all income and expenses throughout the tax year is crucial for accurately claiming these deductions.  

Contributing to a pension is another way freelancers can potentially reduce their taxable income. Pension contributions often receive tax relief, making them a tax-efficient way to save for the future. If applicable, freelancers should also consider the Marriage Allowance, which allows a lower-income partner to transfer a portion of their unused Personal Allowance to their spouse or civil partner, potentially reducing the recipient's tax bill.  

Proactive tax planning throughout the year is highly recommended. Instead of waiting until the tax return deadline, freelancers should review their income and expenses regularly to estimate their potential tax liability. This allows for better cash flow management and helps avoid unexpected tax bills. Utilizing accounting software or engaging the services of an accountant can be invaluable in this process, providing support with record-keeping, tax planning, and ensuring compliance with all relevant regulations. Claiming all legitimate business expenses is essential for freelancers to minimise their taxable profit legally and, consequently, their income tax and NICs liability.

Understanding Making Tax Digital (MTD) for Income Tax

Making Tax Digital (MTD) is a government initiative aimed at making tax administration more efficient and easier for taxpayers through digital record-keeping and reporting. While MTD for VAT is already in effect for VAT-registered businesses, the rules for Income Tax are being introduced gradually. From April 2026, self-employed individuals and landlords with income over £50,000 will be required to follow MTD rules for Income Tax. This will involve maintaining digital records of their income and expenses and providing quarterly updates to HMRC using MTD-compatible software. The MTD for Income Tax threshold is set to reduce further to £30,000 by April 2027. Although these changes are not immediate for all freelancers, especially those with income below the initial threshold, it is advisable to start preparing for digital record-keeping if they anticipate their income will exceed these limits in the coming years. Familiarising themselves with MTD requirements and exploring suitable software options will help ensure a smoother transition when the regulations become applicable to them.  

Tips for Dealing with HMRC

Navigating tax matters can sometimes involve interacting with HMRC. Knowing how to do this effectively can save time and reduce stress. HMRC can be contacted via phone or through their online services. It is always a good practice to keep a record of all communications with HMRC, including dates, representatives' names, and the discussion's content. When HMRC sends an inquiry, it is important to respond promptly and provide all the necessary information. If a freelancer believes they have a reasonable excuse for missing a deadline or making an error, they can appeal against potential penalties. HMRC has also recently introduced a new escalation route for agents dealing with self-assessment and PAYE queries which have been outstanding for more than four weeks. This dedicated team aims to resolve cases efficiently, providing a valuable resource for those who may be experiencing delays. Understanding these processes and available support can empower freelancers to handle any tax-related issues with greater confidence.  

Staying on Top of Your Freelance Taxes

The 2025-2026 tax year brings with it several important considerations for freelancers in the UK. By understanding the key dates and deadlines, familiarising themselves with the income tax and National Insurance contribution rules, addressing VAT obligations where applicable, and staying informed about upcoming tax changes, freelancers can effectively manage their tax responsibilities. Maximising available allowances, planning taxes proactively, and preparing for future changes like MTD for Income Tax are crucial steps towards financial well-being and compliance. While the tax landscape can sometimes seem complex, taking the time to understand these obligations and seeking professional advice when needed will ensure that freelancers can navigate the new tax year with confidence and focus on their core business activities.