Uk Self Employment Sa103

---
name: uk-self-employment-sa103
description: "UK sole trader trading profits on the Self Assessment self-employment pages (SA103S short, SA103F full) for tax year 2026-27, with the 2025-26 figures for returns due by 31 January 2027. Covers who is taxed on trading profits, allowable expenses, the GBP 1,000 trading allowance, cash basis as the default from 2024-25, the tax year basis and the five-year spreading of transition profits, capital allowances (AIA GBP 1 million, 14% main pool from 6 April 2026, 40% first-year allowance), simplified expenses (55p a mile from 2026-27), trade losses and the sideways relief cap, Class 4 NIC, Making Tax Digital for Income Tax from 6 April 2026, filing deadlines, penalties and interest. Trigger: 'sole trader tax', 'SA103', 'allowable expenses', 'trading allowance', 'cash basis', 'basis period reform', 'transition profit', 'MTD for Income Tax'. Out of scope: partnerships (SA104), companies (uk-corporation-tax), NIC detail (uk-national-insurance), payments on account (uk-payments-on-account), Scot"
license: "AGPL-3.0-or-later (code) / OpenAccountants Guide License v1.0 (content)"
metadata:
  source: openaccountants
  openaccountants_url: "https://www.openaccountants.com/skills/uk-self-employment-sa103"
  jurisdiction: "GB"
  tax_year: "2026"
  last_updated: "2026-10-31"
  reviewed_by: "James Power"
---

# UK self-employment: sole trader profits on the SA103 (2026-27, with 2025-26)

> **Source-cited draft.** Drafted from the Income Tax (Trading and Other Income) Act 2005, the Income Tax Act 2007, the Finance Acts 2022, 2024 and 2026, the Capital Allowances Act 2001, the Social Security Contributions and Benefits Act 1992 and HMRC pages, all read on 2026-10-24. No accountant has reviewed it. Do not file from it without review by a qualified UK professional.

This skill computes the taxable trading profit of an individual who trades on their own account, and the Class 4 NIC on it. The income tax on that profit is worked out with the rest of the person's income in `uk-income-tax-sa100` (or `uk-scottish-income-tax` for Scottish taxpayers). Payments on account are in `uk-payments-on-account`; Class 2, Class 4 and voluntary contributions in full are in `uk-national-insurance`.

Tax year: 6 April to 5 April. Authority: HM Revenue and Customs (HMRC). Currency: pound sterling (GBP).

## Who this applies to

- **Sole traders.** An individual carrying on a trade, profession or vocation alone. Partners use the partnership pages (SA104), not this skill. A limited company is taxed under `uk-corporation-tax`.
- **UK residents** are taxed on the profits of their trade wherever it is carried on (ITTOIA 2005 s 6(1)).
- **Non-residents** are taxed only on profits of a trade carried on wholly or partly in the UK, on the UK part (ITTOIA 2005 s 6(2)). A trade of dealing in or developing UK land is taxed wherever it is carried on (s 6(1A)).
- **Split year.** In a split year the overseas part is treated as non-resident (s 6(2A)); see `uk-statutory-residence-test`.
- **Short or full pages.** For 2025-26 the full pages (SA103F) are needed if turnover was GBP 90,000 or more (SA103F notes 2026); below that the short pages (SA103S) can be used if no other full-page condition applies.
- **Small side income.** If gross trading income from all trades is GBP 1,000 or less, the trading allowance covers it in full (see below) and no return is needed for it unless another reason applies.

Who is out: partnerships, companies, employees taxed through PAYE, and landlords (property income goes on the SA105, `uk-rental-sa105`).

## Rates, bands and thresholds

| Item | Rate or amount | Year | Source |
|---|---|---|---|
| Trading allowance (full relief if gross trading income does not exceed it; otherwise elect to deduct it instead of expenses) | GBP 1,000 | 2025-26 and 2026-27 | ITTOIA 2005 ss 783AD, 783AE, 783AH: https://www.legislation.gov.uk/ukpga/2005/5/section/783AD |
| Cash basis | Default for sole traders from 2024-25; election under s 25C to use accruals (GAAP) | 2024-25 onwards | ITTOIA 2005 ss 24A, 25C (inserted by FA 2024 Sch 10): https://www.legislation.gov.uk/ukpga/2024/3/schedule/10 |
| Annual Investment Allowance | GBP 1,000,000 a year | 2025-26 and 2026-27 | CAA 2001 s 51A(5): https://www.legislation.gov.uk/ukpga/2001/2/section/51A |
| Main pool writing-down allowance | 14% from 6 April 2026 (18% before; hybrid rate for a period spanning the date) | 2026-27 (18% for 2025-26) | FA 2026 s 28: https://www.legislation.gov.uk/ukpga/2026/11/section/28 |
| Special rate pool writing-down allowance | 6% | 2025-26 and 2026-27 | https://www.gov.uk/work-out-capital-allowances/rates-and-pools |
| First-year allowance, new and unused main-rate plant (not cars, not second-hand, not special rate) | 40% | Expenditure on or after 1 January 2026 | CAA 2001 ss 45U, 52 (FA 2026 s 29): https://www.legislation.gov.uk/ukpga/2026/11/section/29 |
| First-year allowance, new and unused zero-emission car | 100% | Income tax expenditure to 5 April 2027 | CAA 2001 s 45D(1B)(b) (FA 2026 s 30): https://www.legislation.gov.uk/ukpga/2001/2/section/45D; https://www.gov.uk/capital-allowances/business-cars |
| Simplified expenses: cars and goods vehicles, first 10,000 business miles | 55p a mile (45p before 6 April 2026) | 2026-27 (45p for 2025-26) | ITTOIA 2005 s 94F(2) (Taxation (Energy and Vehicles) Act 2026 s 2): https://www.legislation.gov.uk/ukpga/2005/5/section/94F |
| Simplified expenses: cars and goods vehicles over 10,000 miles; motorcycles | 25p; 24p a mile | 2025-26 and 2026-27 | ITTOIA 2005 s 94F(2): https://www.legislation.gov.uk/ukpga/2005/5/section/94F |
| Simplified expenses: working from home (25-50 / 51-100 / 101+ hours a month) | GBP 10 / 18 / 26 a month | 2025-26 and 2026-27 | https://www.gov.uk/simpler-income-tax-simplified-expenses/print |
| Simplified expenses: private use of business premises (1 / 2 / 3+ people) | GBP 350 / 500 / 650 a month | 2025-26 and 2026-27 | https://www.gov.uk/simpler-income-tax-simplified-expenses/print |
| Transition profit spreading (basis period reform) | 20% a year in 2023-24 to 2026-27; balance in 2027-28 | 2026-27 is year 4 of 5 | FA 2022 Sch 1 para 72: https://www.legislation.gov.uk/ukpga/2022/3/schedule/1 |
| Cap on sideways loss relief and other Step 2 reliefs | Greater of GBP 50,000 and 25% of adjusted total income | 2025-26 and 2026-27 | ITA 2007 s 24A(5): https://www.legislation.gov.uk/ukpga/2007/3/section/24A |
| Cap on sideways relief for a non-active trader (under 10 hours a week on average) | GBP 25,000 a year | 2025-26 and 2026-27 | ITA 2007 ss 74A(4), 74C(2): https://www.legislation.gov.uk/ukpga/2007/3/section/74A |
| Personal allowance; basic rate band (rest of UK) | GBP 12,570; 20% to GBP 50,270, 40% to GBP 125,140, 45% above | 2025-26 and 2026-27 | https://www.gov.uk/income-tax-rates |
| Class 4 NIC | 6% on profits GBP 12,570 to 50,270; 2% above | 2025-26 and 2026-27 | SSCBA 1992 s 15(3): https://www.legislation.gov.uk/ukpga/1992/4/section/15 |
| Class 2 NIC | Not payable; treated as paid at profits of GBP 7,105 or more (2026-27; GBP 6,845 for 2025-26); voluntary GBP 3.65 a week (GBP 3.50 for 2025-26) | 2025-26 and 2026-27 | https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions |
| MTD for Income Tax: qualifying income (turnover from self-employment plus property, before deductions) | Over GBP 50,000 in 2024-25: from 6 April 2026. Over GBP 30,000 in 2025-26: from 6 April 2027. Over GBP 20,000 in 2026-27 or a later year: from 6 April 2028 (two years after the test year) | 2026-27 onwards | Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336) regs 22, 23, 26, 27: https://www.legislation.gov.uk/uksi/2026/336/regulation/27/made |
| Late payment interest; repayment interest | Bank of England base rate plus 4%: 7.75% from 9 January 2026. Repayment interest base rate minus 1% (floor 0.5%): 2.75% from 9 January 2026 | Current | https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates |

## The taxable base

**1. Profits of the tax year.** From 2024-25, tax is charged on the profits of the tax year itself (ITTOIA 2005 s 7(1), as amended by FA 2022 Sch 1). If the accounting year does not end on or between 31 March and 5 April, apportion the profits of the two accounting periods that overlap the tax year, normally by days (BIM81201). If the later accounts are not ready by the filing date, use provisional figures and amend.

**2. Transition profits.** A trader whose accounting date was not 31 March to 5 April had a transition profit in 2023-24. It is spread: 20% is taxed in each of 2023-24, 2024-25, 2025-26 and 2026-27, and the balance in 2027-28 (FA 2022 Sch 1 para 72). The trader can elect to bring more forward (para 73). If the trade ceases first, the whole balance is taxed in the year of cessation (para 72(6)). The spread amount is trading profit for income tax and for Class 4 NIC (SSCBA 1992 s 15(1)(b)), but for income tax it is a separate component that is left out of net income (para 75). The tax on it is the difference between the tax with it included in net income and the tax without it, so it is taxed at the trader's marginal rate, including any personal allowance lost to the taper (BIM81320, example 24). Leaving it out of net income keeps it out of measures that use net income, such as benefits and allowances (BIM81320). Unused overlap relief could only be claimed up to the 2023-24 return; it was set against the transition profit then.

**3. Cash basis or accruals.** The cash basis is the default for sole traders from 2024-25 (ITTOIA 2005 s 24A). Income counts when received and expenses when paid. A trader can elect for generally accepted accounting practice instead (s 25C), for example a business with high stock or one that needs accruals accounts for a lender. Excluded trades cannot use the cash basis (s 25B): partnerships with a non-individual partner, LLPs, a trade with a herd basis election, a trade with a claim to average fluctuating profits (farmers and creative artists), a trade that obtained business premises renovation allowance in the previous 7 years, a mineral extraction trade, and a trade that obtained research and development allowances and still owns the asset. Lloyd's underwriters keep their own rules (s 24A(5)). Under the cash basis, equipment bought to keep and use in the business is deducted as a normal expense; cars still go through capital allowances. From 2024-25 the old cash basis turnover limit, the cap on deductible interest and the bar on sideways loss relief are gone (FA 2024 Sch 10 paras 6 to 8).

**4. Allowable expenses.** A deduction is allowed only for an expense incurred wholly and exclusively for the trade (ITTOIA 2005 s 34). For a mixed-use cost, deduct the identifiable business part. Not allowed: private spending, the trader's own drawings and pay, income tax and NIC, fines, most entertaining, and (under accruals) capital expenditure, which gets capital allowances instead.
- **Entertainment.** No deduction for business entertainment or gifts, including hospitality of any kind (ITTOIA 2005 s 45). Exceptions: entertainment provided for the trader's own employees, unless it is incidental to entertaining others, and entertainment that is itself the trade (s 46). On the 2025-26 SA103F, client entertaining included in box 24 is added back in box 39 (SA103F Notes 2026).
- **Depreciation and losses on assets** are not allowable; capital allowances replace them (SA103F Notes 2026, box 29, add-back in box 44).
- **Travel.** Train, bus, air and taxi fares, and hotel room costs and meals on overnight business trips, are allowable (SA103F Notes 2026, box 20).
- **Loans.** Interest on business loans is allowable (box 25); repayments of the amount borrowed are not.
- **Legal fees.** Legal costs of buying property and large items of equipment, and costs of settling tax disputes, are disallowable (SA103F Notes 2026, box 28, add-back in box 43).
- **Own pay and pension.** The trader's own drawings, NIC and pension payments are not staff costs (SA103F Notes 2026, box 19). Pension relief is claimed on the main return, not the SA103.
- **VAT.** A VAT-registered trader on traditional accounting records income and expenses excluding VAT, unless the VAT is not recoverable. On the cash basis figures normally include VAT: the net VAT paid to HMRC goes in box 30 as an expense and a net repayment goes in box 16. Recoverable VAT is left out of capital allowance computations (SA103F Notes 2026, "Value Added Tax").
- **SA103F boxes for capital allowances (2025-26 form):** box 49 AIA, box 50 main rate (18% on the 2025-26 form; 14% applies from 6 April 2026), box 51 special rate 6%, box 52.1 zero-emission car allowance (SA103F Notes 2026).

**5. Trading allowance (GBP 1,000).** If gross trading income from all trades is GBP 1,000 or less, it is not taxed (ITTOIA 2005 s 783AE). If it is more, the trader can elect for partial relief: deduct GBP 1,000 instead of actual expenses and capital allowances (s 783AH). Neither allowance can be used in a year with any trading or property income from a company the person or someone connected to them owns or controls, a partnership in which they or a connected person are partners, or their employer or their spouse's or civil partner's employer.

**6. Simplified expenses.** Flat rates can replace actual costs for business vehicles (ITTOIA 2005 ss 94D, 94F), working from home (25 hours a month or more) and private use of business premises (rates in the table). A vehicle on simplified mileage cannot also get capital allowances, and once used for a vehicle the flat rate stays for as long as it is used in the business (s 94D(4)). Parking and other travel such as train fares are claimed on top of the mileage rate. The home flat rate does not cover phone and internet: claim the business part of those at actual cost. Cars designed for commercial use, such as black cabs, hackney carriages and dual-control driving school cars, cannot use the mileage rate (GOV.UK simplified expenses). A trader can instead claim the business part of actual home or vehicle costs.

**7. Capital allowances (accruals basis, or cars under either basis).**
- AIA: 100% of plant and machinery spending up to GBP 1,000,000 a year, scaled for a period that is not 12 months. Cars never qualify.
- Main-rate first-year allowance: 40% on new and unused main-rate plant bought on or after 1 January 2026; the rest goes to the main pool. Open to sole traders.
- Zero-emission cars: 100% first-year allowance for a new and unused car with 0 g/km CO2 (or electric) bought by 5 April 2027 (CAA 2001 s 45D, extended by FA 2026 s 30). Other cars: main pool if CO2 is 50 g/km or less, special rate pool above that, and second-hand electric cars go in the main pool (GOV.UK business cars).
- Full expensing and the 50% first-year allowance are for companies only; a sole trader uses the AIA or the 40% allowance.
- Writing-down allowances: main pool 14% from 6 April 2026 (18% before), special rate pool 6%. A basis period straddling 6 April 2026 uses a hybrid rate: 18 x days before plus 14 x days after, over the days in the period, rounded up to 2 decimal places (FA 2026 s 28(4)-(5)).
- Reduce the claim for private use of an asset by a sole trader.

**8. Losses (ITA 2007 Part 4).**
- s 64: set the loss against general income of the loss year, the previous year, or both. Claim by the first anniversary of the 31 January filing date for the loss year (s 64(5)). Relief against general income is only given if the trade is carried on throughout the year on a commercial basis with a view to profit (s 66).
- s 72: a loss in the first 4 tax years of trading can be carried back against general income of the 3 previous years, earliest first.
- s 83: carry forward against later profits of the same trade, without time limit.
- s 89: terminal loss on cessation, carried back against profits of the same trade for the final year and 3 previous years.
- The s 64 and s 72 deductions against other income (with some other reliefs) are capped at the greater of GBP 50,000 and 25% of adjusted total income (s 24A). The cap does not apply to losses set against profits of the same trade (s 24A(7)(b)).
- A trader who spends under an average of 10 hours a week on the trade (non-active capacity) can get no more than GBP 25,000 a year of sideways relief for its losses (ss 74A, 74C).

**9. Class 4 NIC.** 6% of profits between GBP 12,570 and GBP 50,270, and 2% above (SSCBA 1992 s 15(3)). Profits of a trade carried on wholly outside the UK are excluded (s 15(1)(c)). A person over State Pension age at the start of the tax year, or not UK resident for income tax in the year, pays no Class 4 (Social Security (Contributions) Regulations 2001 reg 91). The main rate was 9% for 2023-24 and 6% from 2024-25 (HMRC rates and allowances: National Insurance contributions). Compulsory Class 2 was removed from 6 April 2024 (National Insurance Contributions (Reduction in Rates) Act 2023 s 3, amending SSCBA 1992 s 11). Profits at or above the small profits threshold (GBP 7,105 for 2026-27, GBP 6,845 for 2025-26, GBP 6,725 for 2024-25) give a Class 2 credit treated as paid. Below it, voluntary Class 2 can be paid through Self Assessment at GBP 3.65 a week for 2026-27 (GBP 3.50 for 2025-26, GBP 3.45 for 2024-25) to protect State Pension and contributory benefit entitlement (same source). Detail and exceptions: `uk-national-insurance`.

## Deadlines and filing

- **Register.** Tell HMRC by 5 October after the end of the tax year in which the trade started (for 2025-26: 5 October 2026).
- **Return.** Self Assessment return with the SA103 pages: paper by 31 October, online by 31 January after the tax year (TMA 1970 s 8(1D)). For 2025-26: 31 October 2026 paper, 31 January 2027 online. For 2026-27: 31 October 2027 and 31 January 2028. If the notice to file is issued late, the deadline is 3 months from the notice.
- **Pay.** Balancing payment by 31 January after the tax year (TMA 1970 s 59B(4)). Payments on account fall on 31 January in the tax year and 31 July after it; see `uk-payments-on-account`.
- **Making Tax Digital for Income Tax.** Mandatory from 6 April 2026 for sole traders and landlords whose qualifying income (turnover from self-employment plus gross property income, before expenses) on the 2024-25 return was over GBP 50,000. It extends to qualifying income over GBP 30,000 on the 2025-26 return from 6 April 2027, and over GBP 20,000 on the 2026-27 return from 6 April 2028. The thresholds are set by the Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336, in force 1 April 2026), regs 22, 23 and 27; qualifying income is income before deductions (reg 26). In MTD the trader keeps digital records, sends cumulative quarterly updates (6 April to 5 July, 5 October, 5 January and 5 April) by 7 August, 7 November, 7 February and 7 May (reg 12), and files the tax return through MTD software by 31 January (reg 8). Part 7 of the regulations sets the exemptions, including people with an exclusion notice (digitally excluded), ministers of religion, Lloyd's underwriters, people without a National Insurance number, people who have granted a lasting, enduring or continuing power of attorney or have a deputy appointed for them (reg 32), and for 2026-27 only, trust income, visiting performers, qualifying care providers, people using the foreign income and gains regime and farmers or creative artists averaging profits. Partnerships come in later on a date not yet set.

### How to file the self-employment pages and pay, step by step

Box numbers are from the 2025-26 short form, the return due by 31 January 2027. The 2026-27 forms were not published when read.

**What you need first:** your Unique Taxpayer Reference (UTR), HMRC sign-in details, income and expense records for the accounting period, your accounting date, and photo ID in case HMRC asks you to prove who you are.

1. **Register or reactivate.** First return, or none sent for last year: register at [Register for Self Assessment](https://www.gov.uk/register-for-self-assessment), read 2026-10-31, by 5 October 2026 for 2025-26. Registered before: reactivate within the same service, because filing without reactivating can delay the return ([GOV.UK: file your Self Assessment return](https://www.gov.uk/log-in-file-self-assessment-tax-return), read 2026-10-31). If you register after 5 October 2026, HMRC sets a filing deadline 3 months from its letter or email, and payment is still due by 31 January 2027 ([GOV.UK: deadlines](https://www.gov.uk/self-assessment-tax-returns/deadlines), read 2026-10-31).
2. **Check the route.** HMRC's online service does not cover partnerships, trusts, estates, a person who lived abroad as a non-resident, multiple chargeable event gains, trust income, Lloyd's underwriters or religious ministers. Those use commercial software or other forms ([GOV.UK: file your Self Assessment return](https://www.gov.uk/log-in-file-self-assessment-tax-return), read 2026-10-31).
3. **Choose short or full pages.** Turnover under GBP 90,000 (or what it would have been for a full year) can use SA103S if no full-page condition applies; GBP 90,000 or more uses SA103F ([SA103S notes 2026](https://assets.publishing.service.gov.uk/media/69ce15395cf899414a0bc69f/SA103S_Notes_2026.pdf), read 2026-10-31).
4. **Fill in the SA103S boxes in order** ([SA103S notes 2026](https://assets.publishing.service.gov.uk/media/69ce15395cf899414a0bc69f/SA103S_Notes_2026.pdf), read 2026-10-31):
   - Box 1 description of the business; box 4 foster carer or shared lives carer; box 5 start date if the business started after 5 April 2025; box 6 final trading date if it ceased before 6 April 2026; box 7 date the books are made up to; box 8: X only if you used traditional accounting instead of cash basis.
   - Box 9 turnover; box 10 any other business income; box 10.1 trading income allowance, which replaces boxes 11 to 20 and boxes 23 to 25.2.
   - Boxes 11 to 19 expenses and box 20 the total. Under GBP 90,000 you may put just the total in box 20.
   - Box 21 net profit or box 22 net loss.
   - Boxes 23 to 25.2 capital allowances; box 26 balancing charges; box 27 goods or services for your own use.
   - Boxes 28 and 31 or 32 come from the working sheet in the notes. Boxes 33 to 35 are losses.
   - Box 36: X to pay Class 2 voluntarily on profits under GBP 6,845. Box 37: X if exempt from Class 4. Box 38: Construction Industry Scheme deductions.
5. **Sign in and submit.** You can save and return. You can file from 6 April after the tax year ends ([GOV.UK: file your Self Assessment return](https://www.gov.uk/log-in-file-self-assessment-tax-return), read 2026-10-31). Online return: 11:59pm on 31 January 2027. Paper: 11:59pm on 31 October 2026, received by HMRC ([GOV.UK: deadlines](https://www.gov.uk/self-assessment-tax-returns/deadlines), read 2026-10-31).
6. **Pay by 31 January, with the 11-character reference:** the 10-digit UTR followed by K. A wrong reference can delay the payment or put it against another bill ([GOV.UK: bank details](https://www.gov.uk/pay-self-assessment-tax-bill/bank-details), read 2026-10-31). Online or telephone banking, CHAPS and a debit or corporate credit card usually arrive the same or next day. A personal credit card cannot be used. Bacs, or an existing Direct Debit, takes 3 working days. A new Direct Debit takes 5 working days. You can also pay through the HMRC app. On a weekend or bank holiday, the money must reach HMRC on the last working day before, except by Faster Payments or card ([GOV.UK: pay your bill](https://www.gov.uk/pay-self-assessment-tax-bill), read 2026-10-31). The second payment on account is due on 31 July.
7. **Pay through your tax code** only if you owe under GBP 3,000 (a part payment cannot bring it under), already pay through PAYE, and filed on paper by 31 October or online by 30 December. HMRC then collects it over 12 months ([GOV.UK: through your tax code](https://www.gov.uk/pay-self-assessment-tax-bill/through-your-tax-code), read 2026-10-31).
8. **To correct it:** wait 72 hours after filing. If you filed on HMRC's site, sign in and go to Your tax account > Self Assessment account > More Self Assessment details > At a glance > Tax return options, choose the tax year, make the corrections and file again. If you filed with commercial software, ask your software provider how to correct it; if the software cannot make corrections, contact HMRC. On paper, send corrected pages marked "amendment" with your name and UTR. After an online change, the amended bill shows straight away, and within 3 days your statement shows the difference from the old bill and any interest: check both under View statements. After a paper change, HMRC sends an updated bill. The window is 12 months from the filing deadline. After that, write to HMRC. An overpayment relief claim runs to 4 years after the end of the tax year, in writing with a declaration you sign yourself; an agent cannot sign it ([GOV.UK: corrections](https://www.gov.uk/self-assessment-tax-returns/corrections), read 2026-10-31).
9. **If you are in Making Tax Digital for the year,** you sign up first (from September 2026 HMRC signs up those who have not), then use compatible software for digital records, quarterly updates and the return. Sign in with the same user ID you used to register for Self Assessment. HMRC applies no penalty points for late quarterly updates in 2026-27. Penalties for late returns and late payment still apply ([GOV.UK: sign up for MTD for Income Tax](https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax), read 2026-10-31).

**Stop and get a professional when:** you are in a partnership or were non-resident; you trade through a company; you have a transition profit you cannot trace; or the return would carry a loss claim against other income.

## Penalties and interest

**Annual Self Assessment return (FA 2009 Sch 55), outside MTD:**
- GBP 100 on the day after the deadline.
- After 3 months: GBP 10 a day for up to 90 days (maximum GBP 900).
- After 6 months: the greater of 5% of the tax due and GBP 300.
- After 12 months: another greater of 5% and GBP 300 (higher where information is deliberately withheld).

**Late payment (FA 2009 Sch 56), outside MTD:** 5% of the tax unpaid at 30 days, again at 6 months and again at 12 months.

**MTD for Income Tax (from the year the trader joins):**
- Late submission is points based: one point per missed deadline; at 4 points a GBP 200 penalty, and GBP 200 for each further missed deadline. For 2026-27 there are no penalties for late quarterly updates; a late tax return still earns a point.
- Late payment: nothing if paid within 15 days. For 2026-27: 3% of the tax owed at day 15, plus 3% of the tax still owed at day 30, plus 10% a year charged daily from day 31 (for up to 2 years) (FA 2021 Sch 26 paras 5 and 8, as amended by SI 2025/589). In the first MTD year, a payment 16 to 30 days late carries no penalty. Payments on account are outside these penalties.

**Interest.** Late payment interest runs from the due date at base rate plus 4%: 7.75% from 9 January 2026. Repayment interest is base rate minus 1% with a 0.5% floor.

**Failure to notify.** Registering after 5 October and not paying all tax by 31 January can bring a failure to notify penalty based on the tax unpaid.

## Cross-border points

- **UK resident with a foreign trade.** All profits are taxable in the UK (ITTOIA 2005 s 6(1)). A trade carried on wholly outside the UK gives relevant foreign income (s 7(5)) and is outside Class 4 NIC (SSCBA 1992 s 15(1)(c)). Foreign tax on the same profits is relieved by credit; see `uk-foreign-tax-and-withholding`. New UK arrivals may use the foreign income and gains regime; see `uk-non-dom`.
- **Non-resident trading in the UK.** Only the profits of the part of the trade carried on in the UK are taxable (s 6(2)), except a trade of dealing in or developing UK land, which is taxed in full (s 6(1A)). A person not UK resident for the tax year pays no Class 4 (SSCR 2001 reg 91). Hub skill: `uk-non-resident-sa109`.
- **Arriving or leaving mid-year.** Check for a split year (`uk-statutory-residence-test`); profits of the overseas part follow the non-resident rule.
- **Social security abroad.** Whether UK Class 4 or foreign contributions apply depends on residence and any social security agreement; see `uk-national-insurance`.

## Worked examples

### Example 1: Sole trader on the cash basis, turnover GBP 48,000 (2026-27)

Priya is a self-employed graphic designer in Manchester. In 2026-27 she receives GBP 48,000 from clients and pays GBP 9,000 of allowable expenses (software, phone, accountant, insurance). She drives 6,000 business miles in her own car and uses the flat rate. She has no other income and uses the cash basis.

- Mileage: 6,000 x 55p = GBP 3,300 (all within the first 10,000 miles).
- Profit: 48,000 - 9,000 - 3,300 = GBP 35,700. The trading allowance would give only 48,000 - 1,000 = GBP 47,000, so actual expenses are better.
- Taxable income: 35,700 - 12,570 = GBP 23,130, all at 20% = GBP 4,626.00.
- Class 4 NIC: 23,130 x 6% = GBP 1,387.80.
- Total: GBP 6,013.80, due by 31 January 2028 if she has no payments on account.
- MTD: her qualifying income is turnover, not profit. If her 2025-26 turnover was over GBP 30,000, she must use MTD from 6 April 2027.

```oa-check
name: Sole trader, cash basis, turnover 48,000, 2026-27
inputs:
  turnover: 48000
  expenses: 9000
  business_miles: 6000
  personal_allowance: 12570
steps:
  - mileage: min(business_miles, 10000) * 0.55 + max(business_miles - 10000, 0) * 0.25
  - profit: turnover - expenses - mileage
  - profit_with_trading_allowance: turnover - 1000
  - taxable: profit - personal_allowance
  - income_tax: min(taxable, 37700) * 0.20
  - class4: (min(profit, 50270) - 12570) * 0.06
  - total: income_tax + class4
expected:
  mileage: 3300
  profit: 35700
  profit_with_trading_allowance: 47000
  taxable: 23130
  income_tax: 4626.00
  class4: 1387.80
  total: 6013.80
```

### Example 2: 30 September year end, apportionment and transition profit (2026-27)

Tom has run a plumbing business for years with accounts to 30 September. His accounts show a taxable profit (after capital allowances) of GBP 60,000 for the year to 30 September 2026 and GBP 72,000 for the year to 30 September 2027. His 2023-24 transition profit was GBP 25,000, spread at 20% a year. He has no other income and lives in England.

- Year to 30 September 2026: the part from 6 April to 30 September 2026 is 178 of 365 days: 60,000 x 178 / 365 = GBP 29,260.27.
- Year to 30 September 2027: the part from 1 October 2026 to 5 April 2027 is 187 of 365 days: 72,000 x 187 / 365 = GBP 36,887.67.
- Profit of the tax year 2026-27: GBP 66,147.95.
- Transition profit for 2026-27 (year 4 of 5): 25,000 x 20% = GBP 5,000. The last GBP 5,000 is taxed in 2027-28.
- Total trading profit: GBP 71,147.95. His income including the transition part is under GBP 100,000, so the full personal allowance stays and the transition part is taxed as if it were ordinary profit.
- Income tax: 37,700 x 20% = GBP 7,540.00; (71,147.95 - 50,270) x 40% = GBP 8,351.18; total GBP 15,891.18.
- Class 4 NIC (the transition profit counts): (50,270 - 12,570) x 6% = GBP 2,262.00; (71,147.95 - 50,270) x 2% = GBP 417.56; total GBP 2,679.56.
- Total: GBP 18,570.74.
- Edge case: the 2027 accounts must be final, or provisional figures used, before the 31 January 2028 deadline. Changing his year end to 31 March would end the apportionment.

```oa-check
name: Sole trader, 30 September year end with transition profit, 2026-27
inputs:
  profit_ye_sep_2026: 60000
  profit_ye_sep_2027: 72000
  days_in_2026_27_from_first: 178
  days_in_2026_27_from_second: 187
  days_in_year: 365
  transition_profit: 25000
  personal_allowance: 12570
steps:
  - part_first: profit_ye_sep_2026 * days_in_2026_27_from_first / days_in_year
  - part_second: profit_ye_sep_2027 * days_in_2026_27_from_second / days_in_year
  - tax_year_profit: part_first + part_second
  - transition_part: transition_profit * 0.20
  - total_profit: tax_year_profit + transition_part
  - taxable: total_profit - personal_allowance
  - basic_tax: min(taxable, 37700) * 0.20
  - higher_tax: (min(taxable, 112570) - 37700) * 0.40
  - income_tax: basic_tax + higher_tax
  - class4_main: (min(total_profit, 50270) - 12570) * 0.06
  - class4_upper: max(total_profit - 50270, 0) * 0.02
  - class4: class4_main + class4_upper
  - total: income_tax + class4
expected:
  part_first: 29260.27
  part_second: 36887.67
  tax_year_profit: 66147.95
  transition_part: 5000
  total_profit: 71147.95
  basic_tax: 7540.00
  higher_tax: 8351.18
  income_tax: 15891.18
  class4_main: 2262.00
  class4_upper: 417.56
  class4: 2679.56
  total: 18570.74
```

### Example 3: Trading allowance against actual expenses

Side income of GBP 4,000 from occasional consulting, with actual expenses of GBP 700. Actual expenses give a profit of GBP 3,300; the trading allowance gives GBP 3,000 (ITTOIA 2005 s 783AH). Elect for the allowance. Turnover is below every MTD threshold.

```oa-check
name: Trading allowance against actual expenses
inputs:
  income: 4000
  expenses: 700
steps:
  - profit_actual: income - expenses
  - profit_allowance: income - 1000
expected:
  profit_actual: 3300
  profit_allowance: 3000
```

### Example 4: Home office, flat rate against actual costs

A trader works from home 130 hours a month for 11 months. The flat rate gives 11 x GBP 26 = GBP 286 (GOV.UK simplified expenses). Actual costs: one room of five, with household rent GBP 12,000, utilities GBP 2,400 and broadband GBP 480, gives 1/5 of GBP 14,880 = GBP 2,976. The actual method gives more here; check the room's business use before claiming.

```oa-check
name: Home office flat rate against actual costs
inputs:
  months: 11
  rent: 12000
  utilities: 2400
  broadband: 480
steps:
  - flat_rate: months * 26
  - actual: (rent + utilities + broadband) / 5
expected:
  flat_rate: 286
  actual: 2976
```

### Example 5: Voluntary Class 2 on low profits (2026-27)

Profit of GBP 4,200 is below the small profits threshold of GBP 7,105. Class 4 is nil (below GBP 12,570) and no Class 2 is due. To keep the year qualifying for State Pension, the trader can pay voluntary Class 2 through Self Assessment: 52 x GBP 3.65 = GBP 189.80.

```oa-check
name: Voluntary Class 2, 2026-27
inputs:
  weeks: 52
  weekly_rate: 3.65
steps:
  - voluntary_class2: weeks * weekly_rate
expected:
  voluntary_class2: 189.80
```

### Example 6: which should I use, cash basis or traditional accounting? (2026-27)

Sana is a self-employed consultant with a 5 April year end and no other income. In 2026-27 she receives GBP 52,000 and pays GBP 12,000 of expenses. At 5 April 2027 clients owe her GBP 6,000 and she owes suppliers GBP 500. She held nothing unpaid at the start of the year. Cash basis is the standard method; traditional accounting records income and costs by invoice or bill date, keeps more records, and is shown with an X in box 8 ([GOV.UK: cash basis](https://www.gov.uk/simpler-income-tax-cash-basis), read 2026-10-31; [SA103S notes 2026](https://assets.publishing.service.gov.uk/media/69ce15395cf899414a0bc69f/SA103S_Notes_2026.pdf), read 2026-10-31).

- Cash basis: profit 52,000 - 12,000 = GBP 40,000.
- Traditional: income 58,000 less costs 12,500 = GBP 45,500.
- The deciding figure is year-end debtors less creditors: GBP 5,500 of extra profit this year. At 20% income tax and 6% Class 4, that is GBP 1,430 more due for 2026-27.
- That is a timing gap, not a saving: the income is taxed when received. She stays on the cash basis unless a lender wants accruals accounts, or the trade is excluded.

```oa-check
name: Cash basis against traditional accounting, 2026-27
inputs:
  received: 52000
  paid: 12000
  debtors: 6000
  creditors: 500
steps:
  - profit_cash: received - paid
  - profit_traditional: received + debtors - paid - creditors
  - gap: profit_traditional - profit_cash
  - extra_tax: gap * 0.26
expected:
  profit_cash: 40000
  profit_traditional: 45500
  gap: 5500
  extra_tax: 1430
```

## Ask the client first

1. What is your accounting year end, and do you still have transition profit being spread from 2023-24?
2. What was your turnover from self-employment and gross property income on your 2024-25 and 2025-26 returns? (This decides when MTD applies.)
3. Do you use the cash basis or traditional (accruals) accounting, and do you hold stock?
4. What did you buy for the business this year (equipment, vans, cars), when, new or used, and how much is private use?
5. Did the business make a loss in this or an earlier year, and do you have other income to set it against?
6. Were you UK resident for the whole tax year, and do you trade anywhere outside the UK?

## Sources

| Source | URL | Read on |
|---|---|---|
| ITTOIA 2005 s 6 (territorial scope) | https://www.legislation.gov.uk/ukpga/2005/5/section/6 | 2026-10-24 |
| ITTOIA 2005 s 7 (profits of the tax year) | https://www.legislation.gov.uk/ukpga/2005/5/section/7 | 2026-10-24 |
| ITTOIA 2005 s 25 (GAAP where cash basis does not apply) | https://www.legislation.gov.uk/ukpga/2005/5/section/25 | 2026-10-24 |
| ITTOIA 2005 s 34 (wholly and exclusively) | https://www.legislation.gov.uk/ukpga/2005/5/section/34 | 2026-10-24 |
| ITTOIA 2005 ss 783A, 783AD, 783AE, 783AH (trading allowance) | https://www.legislation.gov.uk/ukpga/2005/5/section/783AD | 2026-10-24 |
| Finance Act 2024 Sch 10 (cash basis default, ss 24A, 25B, 25C) | https://www.legislation.gov.uk/ukpga/2024/3/schedule/10 | 2026-10-24 |
| Finance Act 2022 Sch 1 paras 65 to 75 (transition profits) | https://www.legislation.gov.uk/ukpga/2022/3/schedule/1 | 2026-10-24 |
| Finance Act 2026 s 28 (main pool 14%, hybrid rate) | https://www.legislation.gov.uk/ukpga/2026/11/section/28 | 2026-10-24 |
| Finance Act 2026 s 29 (40% first-year allowance, CAA 2001 s 45U) | https://www.legislation.gov.uk/ukpga/2026/11/section/29 | 2026-10-24 |
| CAA 2001 s 51A (AIA GBP 1,000,000) | https://www.legislation.gov.uk/ukpga/2001/2/section/51A | 2026-10-24 |
| ITA 2007 s 24A (cap on reliefs) | https://www.legislation.gov.uk/ukpga/2007/3/section/24A | 2026-10-24 |
| ITA 2007 s 64 (loss against general income) | https://www.legislation.gov.uk/ukpga/2007/3/section/64 | 2026-10-24 |
| ITA 2007 s 72 (early trade losses) | https://www.legislation.gov.uk/ukpga/2007/3/section/72 | 2026-10-24 |
| ITA 2007 s 83 (carry-forward) | https://www.legislation.gov.uk/ukpga/2007/3/section/83 | 2026-10-24 |
| ITA 2007 s 89 (terminal loss) | https://www.legislation.gov.uk/ukpga/2007/3/section/89 | 2026-10-24 |
| ITA 2007 s 66 (commercial trade condition) | https://www.legislation.gov.uk/ukpga/2007/3/section/66 | 2026-10-24 |
| ITA 2007 ss 74A, 74C (non-active trader cap) | https://www.legislation.gov.uk/ukpga/2007/3/section/74A | 2026-10-24 |
| ITTOIA 2005 ss 24A, 25B, 25C (cash basis default, excluded trades, GAAP election) | https://www.legislation.gov.uk/ukpga/2005/5/section/25B | 2026-10-24 |
| ITTOIA 2005 ss 94D, 94F (vehicle flat rates, 55p from 2026-27) | https://www.legislation.gov.uk/ukpga/2005/5/section/94F | 2026-10-24 |
| CAA 2001 s 45D (zero-emission cars, extended by FA 2026 s 30) | https://www.legislation.gov.uk/ukpga/2001/2/section/45D | 2026-10-24 |
| Income Tax (Digital Obligations) Regulations 2026, SI 2026/336 (MTD thresholds, quarterly deadlines, exemptions) | https://www.legislation.gov.uk/uksi/2026/336/contents/made | 2026-10-24 |
| FA 2021 Sch 26 para 5 (MTD late payment penalty 3%, as amended by SI 2025/589) | https://www.legislation.gov.uk/ukpga/2021/26/schedule/26/paragraph/5 | 2026-10-24 |
| Social Security (Contributions) Regulations 2001 reg 91 (Class 4 exceptions) | https://www.legislation.gov.uk/uksi/2001/1004/regulation/91 | 2026-10-24 |
| HMRC Business Income Manual BIM81320 (tax on transition profits) | https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim81320 | 2026-10-24 |
| GOV.UK, Capital allowances: business cars | https://www.gov.uk/capital-allowances/business-cars | 2026-10-24 |
| GOV.UK, Capital allowances: full expensing | https://www.gov.uk/capital-allowances/full-expensing | 2026-10-24 |
| ITTOIA 2005 ss 45, 46 (business entertainment) | https://www.legislation.gov.uk/ukpga/2005/5/section/45 | 2026-10-27 |
| NIC (Reduction in Rates) Act 2023 s 3 (Class 2 no longer payable) | https://www.legislation.gov.uk/ukpga/2023/57/section/3 | 2026-10-27 |
| SSCBA 1992 s 15 (Class 4) | https://www.legislation.gov.uk/ukpga/1992/4/section/15 | 2026-10-24 |
| TMA 1970 s 8 (return deadlines) | https://www.legislation.gov.uk/ukpga/1970/9/section/8 | 2026-10-24 |
| TMA 1970 s 59B (balancing payment) | https://www.legislation.gov.uk/ukpga/1970/9/section/59B | 2026-10-24 |
| FA 2009 Sch 55 (late filing penalties) | https://www.legislation.gov.uk/ukpga/2009/10/schedule/55 | 2026-10-24 |
| FA 2009 Sch 56 (late payment penalties) | https://www.legislation.gov.uk/ukpga/2009/10/schedule/56 | 2026-10-24 |
| HMRC Business Income Manual BIM81201 (tax year basis, apportionment) | https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim81201 | 2026-10-24 |
| GOV.UK, Get help with basis period reform | https://www.gov.uk/guidance/get-help-with-basis-period-reform | 2026-10-24 |
| GOV.UK, Cash basis | https://www.gov.uk/simpler-income-tax-cash-basis/print | 2026-10-24 |
| GOV.UK, Tax-free allowances on property and trading income | https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income | 2026-10-24 |
| GOV.UK, Simplified expenses | https://www.gov.uk/simpler-income-tax-simplified-expenses/print | 2026-10-24 |
| GOV.UK, Annual Investment Allowance | https://www.gov.uk/capital-allowances/annual-investment-allowance | 2026-10-24 |
| GOV.UK, 40% first-year allowance | https://www.gov.uk/capital-allowances/40-first-year-allowance | 2026-10-24 |
| GOV.UK, Capital allowances rates and pools | https://www.gov.uk/work-out-capital-allowances/rates-and-pools | 2026-10-24 |
| GOV.UK, Income Tax rates and Personal Allowances (current and previous) | https://www.gov.uk/income-tax-rates | 2026-10-24 |
| GOV.UK, Self-employed National Insurance rates | https://www.gov.uk/self-employed-national-insurance-rates | 2026-10-24 |
| HMRC, Rates and allowances: National Insurance contributions | https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions | 2026-10-24 |
| GOV.UK, Find out if and when you need to use MTD for Income Tax | https://www.gov.uk/guidance/find-out-if-and-when-you-need-to-use-making-tax-digital-for-income-tax | 2026-10-24 |
| GOV.UK, Work out your qualifying income for MTD for Income Tax | https://www.gov.uk/guidance/work-out-your-qualifying-income-for-making-tax-digital-for-income-tax | 2026-10-24 |
| GOV.UK, Penalties for MTD for Income Tax | https://www.gov.uk/guidance/penalties-for-making-tax-digital-for-income-tax | 2026-10-24 |
| GOV.UK, Self Assessment deadlines | https://www.gov.uk/self-assessment-tax-returns/deadlines | 2026-10-24 |
| GOV.UK, Self Assessment penalties | https://www.gov.uk/self-assessment-tax-returns/penalties | 2026-10-24 |
| HMRC interest rates for late and early payments | https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates | 2026-10-24 |
| HMRC, Self-employment (full) notes 2025-26 (SA103F Notes 2026) | https://assets.publishing.service.gov.uk/media/69c26565cfa346b9d4704b35/SA103F_Notes_2026.pdf | 2026-10-24 |
| GOV.UK, register for Self Assessment | https://www.gov.uk/register-for-self-assessment | 2026-10-31 |
| GOV.UK, file your Self Assessment tax return online | https://www.gov.uk/log-in-file-self-assessment-tax-return | 2026-10-31 |
| GOV.UK, Self Assessment deadlines (2025-26) | https://www.gov.uk/self-assessment-tax-returns/deadlines | 2026-10-31 |
| HMRC, Self-employment (short) notes 2025-26 (SA103S Notes 2026; boxes and GBP 90,000 limit) | https://assets.publishing.service.gov.uk/media/69ce15395cf899414a0bc69f/SA103S_Notes_2026.pdf | 2026-10-31 |
| GOV.UK, pay your Self Assessment tax bill | https://www.gov.uk/pay-self-assessment-tax-bill | 2026-10-31 |
| GOV.UK, bank details (UTR plus K) | https://www.gov.uk/pay-self-assessment-tax-bill/bank-details | 2026-10-31 |
| GOV.UK, pay through your tax code | https://www.gov.uk/pay-self-assessment-tax-bill/through-your-tax-code | 2026-10-31 |
| GOV.UK, corrections | https://www.gov.uk/self-assessment-tax-returns/corrections | 2026-10-31 |
| GOV.UK, sign up for MTD for Income Tax | https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax | 2026-10-31 |
| GOV.UK, cash basis | https://www.gov.uk/simpler-income-tax-cash-basis | 2026-10-31 |

Not yet confirmed: the 2026-27 SA103S and SA103F forms and box numbers (not published when read); the MTD late payment penalty of 4% at day 15 and day 30 for 2027-28 (GOV.UK states it, but FA 2021 Sch 26 para 5 as in force on 2026-10-24 still says 3%, and no amending instrument was found); how the 40% first-year allowance applies to a cash basis trader (equipment is deducted as an expense there, so the allowance matters mainly under accruals and for cars, which it excludes); the detail of the MTD exemption for persons entitled to certain reductions or allowances (SI 2026/336 reg 38, not read). How-to: the on-screen receipt HMRC gives after online submission was not on the pages read; the time HMRC takes to issue a UTR after registering was not read.

## Today's figures and who stands behind this skill

This file is an AI skill (tax rules your AI follows) from OpenAccountants, copied on 2026-10-31. Rates, thresholds and deadlines change. For the current version of this skill, its official sources and the named accountant (if any) who stands behind it, call `get_skill` with slug `uk-self-employment-sa103` on the OpenAccountants connector (https://www.openaccountants.com/connect), or read https://www.openaccountants.com/skills/uk-self-employment-sa103. If neither is available, confirm every figure against the official source pages cited above before relying on it.