How self assessment works for contractors is one of those things nobody explains to you when you go out on your own, and the gap between ‘I think I need to do a tax return’ and actually understanding what that means can feel pretty wide.

Do Contractors Actually Need to Do Self Assessment?

If you’re earning income outside of PAYE, yes, you almost certainly need to register for self assessment with HMRC. That applies whether you’re a sole trader, working through your own limited company, or operating as a CIS subcontractor in construction. The moment contracting income hits your bank account, you take on the responsibility of reporting it.

The registration deadline is 5 October in the tax year after you first started earning outside employment. So if you started contracting in the 2024-25 tax year, the deadline to register was 5 October 2025. Missing that can result in a penalty, so if you haven’t registered yet and you’re already earning, that is the first thing to sort today.

What Makes Self Assessment More Complicated for Contractors?

The answer depends on how you’re set up. A sole trader contractor files a personal Self Assessment tax return, reports their income and allowable expenses, and pays Income Tax plus Class 4 National Insurance on the profit. A limited company contractor still files a personal Self Assessment, but that sits alongside a separate Corporation Tax return for the company itself. Two returns, two sets of deadlines.

Then there’s IR35, which is where a lot of contractors get tripped up. If HMRC decides your contract looks like employment rather than genuine self-employment, IR35 rules can mean you pay tax as though you’re an employee, even if you’re billing through a limited company. It’s one of the most misunderstood areas of contractor tax, and the consequences of getting it wrong can be significant. I cover the full picture on my self assessment for contractors service page if you want to go through it in detail.

What Expenses Can Contractors Claim on Self Assessment?

Allowable expenses are one of the genuine advantages of being a contractor rather than an employee. They reduce your taxable profit, which directly reduces your tax bill. Common ones include mileage, home office costs, equipment, software subscriptions, professional indemnity insurance, and relevant training courses.

The rule HMRC applies is that expenses must be wholly and exclusively for business purposes. Your laptop is claimable if it’s used for work. A business lunch is only claimable in specific circumstances. HMRC’s guidance on allowable expenses for the self-employed is worth a read, but if you’re ever unsure about a specific cost, I’d always say ask before you claim it, because falsely claimed expenses can lead to significant financial penalties from HMRC.

What Is Making Tax Digital and Does It Affect Contractors?

Making Tax Digital for Income Tax (MTD for IT) is a significant change to how self-employed people report income to HMRC. From 6 April 2026, sole traders and landlords with income over £50,000 must use recognised software to keep digital records and send HMRC quarterly updates of income and expenses, rather than just one annual return. The threshold drops to £30,000 in April 2027, and £20,000 in April 2028.

If you’re a contractor earning above those thresholds, this affects you directly. The first MTD tax return covering the 2026-27 tax year isn’t due until 31 January 2028, and HMRC won’t issue penalty points for late quarterly updates in the first 12 months of joining. But switching to digital record-keeping takes a bit of setup, and doing it properly now is far less stressful than scrambling at the last minute.