The First Year as a Self-Employed Person: What to Expect Financially

A Different Financial World

The move to self-employment is a fundamental shift in how money works for you. Gone is the predictable monthly payslip with tax already deducted. In its place: variable income, responsibility for your own tax, and the need to manage cash flow without a safety net.

Understanding what to expect financially helps you navigate the first year with confidence rather than anxiety.

Expect Irregular Income

Unless you have secured retainers or long-term contracts before starting, your income will be uneven. Some months will be strong. Others will be quiet. This is normal, especially in the first year when you are building your client base.

How to Handle It

• Build a buffer before you start — ideally 3-6 months of living expenses saved before going self-employed
• Invoice promptly — do not wait to send invoices. The sooner you invoice, the sooner you get paid
• Chase late payments — have a system for following up on overdue invoices
• Diversify your client base — avoid dependence on a single client

Your First Tax Bill May Be a Shock

When you are employed, tax is deducted before you receive your pay. When you are self-employed, you receive the full amount and must pay tax later.

Your first tax bill arrives on 31 January following the end of your first full tax year. But it may include payments on account for the following year, effectively making it 150% of your annual tax. This catches many new self-employed people off guard.

Example

If you start in April 2026 and make £40,000 profit in 2026/27:

• Tax and NI for 2026/27: approximately £7,700
• First payment on account for 2027/28: approximately £3,850
• Total due 31 January 2028: approximately £11,550

That is a significant sum if you have not been setting money aside.

The Solution: Save for Tax from Day One

Set aside 25-30% of every payment you receive into a separate savings account labelled "tax." Do not touch it for any other purpose. When the bill arrives, the money is ready.

Expenses Are Different

As a self-employed person, you can deduct allowable business expenses from your income before calculating tax. This is a significant advantage:

Common First-Year Expenses

• Equipment — laptop, phone, tools of your trade
• Software — accounting software, design tools, project management
• Insurance — professional indemnity, public liability
• Marketing — website, business cards, advertising
• Travel — mileage to clients, public transport
• Home office — a proportion of home costs if you work from home
• Training — courses related to your trade
• Professional memberships — industry bodies, trade associations
• Accountancy fees — the cost of preparing your tax return

Track every expense from the very first day. Receipts you lose are deductions you cannot claim.

National Insurance

You will pay two types of National Insurance:

• Class 2: £3.45 per week (contributes to State Pension)
• Class 4: 6% on profits between £12,570 and £50,270

These are calculated and paid through Self Assessment, alongside your income tax.

VAT Threshold

If your turnover (not profit) exceeds £90,000 in any rolling 12-month period, you must register for VAT. Most new businesses are below this threshold, but keep an eye on it as you grow.

Cash Flow Management

Cash flow — not profit — is what determines whether your business survives. You can be profitable on paper but run out of cash if clients pay late or expenses bunch together.

First-Year Cash Flow Tips

• Track everything — know your income and expenses in real time
• Separate business and personal finances — use a dedicated bank account
• Plan for tax — set aside money monthly, not annually
• Build an emergency fund — cover at least 3 months of business and personal expenses
• Invoice quickly and chase diligently

Making Tax Digital

From April 2026, self-employed individuals with income over £50,000 must comply with Making Tax Digital for Income Tax. This means:

• Keeping digital records
• Submitting quarterly updates to HMRC
• Using MTD-compatible software

Even if you are below the threshold, digital record keeping is best practice.

How Accounted Supports Your First Year

Accounted is built for exactly this moment — the first year of self-employment when getting your finances right matters most:

• Bank feed connection — see your income and expenses in real time
• WhatsApp receipt capture — snap every receipt and Penny categorises it
• Tax estimate — know your projected tax bill as you earn
• Deadline reminders — never miss a filing or payment date
• MTD ready — compliant from day one

Check our pricing plans and start your self-employment journey right.

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Your first year sets the foundation for everything that follows. Sign up for Accounted and let Penny help you build it on solid financial ground.