Tax is one of those things that feels manageable when someone else handles it. The moment you go out on your own as a consultant, that changes.
Suddenly you are responsible for registering with HMRC, calculating what you owe, setting money aside, and hitting deadlines that don’t move. It’s entirely doable, but it helps to know what’s coming.
At APH, we’ve been helping consultants across the UK navigate exactly this since 2010. Here are eight things worth knowing from the start.
1. You are responsible for your own tax from day one
When you were employed, your employer handled income tax and National Insurance through PAYE. It came out of your salary automatically and you rarely had to think about it.
As a self-employed consultant, that stops immediately.
From the moment you start earning consultancy income, you are responsible for registering with HMRC, keeping records, and making sure the right amount of tax reaches HMRC by the right deadline.
The registration deadline is 5th October following the end of the tax year in which you started trading. Don’t leave it until you’re chasing your first invoice.
“I’ve been using APH Accountants since I went self-employed in 2018 and they have been amazing to work with. Paul always adds a friendly and personable touch.” — Scott Woolley
If you’re just starting out, speak to us before you begin trading and we’ll make sure everything is set up correctly from day one.
2. Your business structure changes everything
Whether you operate as a sole trader or through a limited company affects how much tax you pay, how you pay yourself, and how much administration you take on.
As a sole trader, you pay income tax and National Insurance on your profits through self-assessment. Simple to set up, straightforward to run.
As a limited company director, you pay yourself a combination of salary and dividends, which can be more tax efficient at higher income levels. Corporation tax applies to company profits rather than income tax at the personal level.
For most consultants earning consistently above £30,000 to £35,000 in profit, a limited company is worth exploring seriously.
The right structure depends on your specific situation. You can find out more about our limited company accountancy services here.
3. Your tax bill is based on profit, not turnover
This trips up a surprising number of new consultants.
You do not pay tax on everything you earn. You pay tax on your profits, which is your income minus your allowable business expenses.
This means that claiming the right expenses is not just good housekeeping. It directly reduces the amount of tax you owe.
Allowable expenses for consultants include home office costs, travel, professional indemnity insurance, software subscriptions, training, and accountancy fees among others. We’ve covered these in detail in our guide to 12 consultant tax deductions you can claim in the UK.
4. Payments on account will catch you out if you’re not ready
This is the one that surprises most consultants in their second year of trading.
If your tax bill for the year exceeds £1,000, HMRC requires you to make two advance payments toward the following year’s bill. These are called payments on account, and they are due on 31st January and 31st July each year.
In practice, this means that in your second January as a self employed consultant, you may need to pay:
- The balance of your first year’s tax bill
- The first payment on account toward your second year’s bill
For consultants who haven’t budgeted for this, it can feel like a very large and very unexpected demand arriving at the worst possible time of year.
The solution is simple. Set aside a proportion of every invoice you receive throughout the year. A good accountant will help you calculate exactly how much.
5. VAT is a separate obligation entirely
Income tax and VAT are completely separate things, and it’s important not to confuse them.
You must register for VAT if your taxable turnover exceeds £90,000 in any rolling 12 month period. Once registered, you charge VAT on top of your fees, collect it from clients, and pay it to HMRC quarterly.
You can also register voluntarily below the threshold, which makes sense if your clients are VAT-registered businesses who can reclaim the VAT you charge.
The Flat Rate Scheme is worth exploring once you are VAT registered, as it can simplify your VAT accounting and occasionally result in a small financial benefit.
If you’re approaching the threshold or unsure whether voluntary registration makes sense for your consultancy, speak to us and we’ll help you work it out.
6. You can legitimately reduce your bill through expenses
One of the genuine advantages of being self-employed is the ability to claim business expenses against your taxable profit.
Many consultants either miss expenses they’re entitled to claim, or overclaim on things HMRC would not allow. Both cause problems.
The key rule is that an expense must be wholly and exclusively for business purposes to qualify.
Consistently capturing every legitimate expense throughout the year, rather than scrambling to remember them in January, makes a meaningful difference to your final tax bill.
Common expenses consultants miss include home office costs, professional subscriptions, training courses, and the cost of their accountant’s fees.
7. IR35 could change your tax position significantly
If you work through a limited company, IR35 is something you cannot afford to ignore.
IR35 is HMRC’s off-payroll working legislation. If HMRC determines that your working relationship with a client resembles employment rather than genuine self employment, you may be required to pay tax and National Insurance as if you were an employee. The tax saving from operating through a limited company disappears entirely.
Getting your IR35 status right is not just a compliance issue. It can have a very significant impact on your take home income.
The key factors HMRC looks at include how much control your client has over how and when you work, whether you can send a substitute, and whether you bear genuine financial risk.
If you are unsure of your IR35 position, this is exactly the kind of question a specialist accountant can help you answer clearly. You can find out more about how we support IT consultants and contractors here.
8. Getting specialist advice early saves money later
The most expensive accounting mistakes consultants make are almost always the ones made in the early days, before they had the right support in place.
Wrong business structure. Missed expenses. Unexpected tax bills. IR35 exposure that could have been avoided. These are not unusual situations. They are common ones, and they are largely preventable.
A specialist accountant does not just file your returns. They help you build a tax efficient consultancy from the ground up and keep it that way as you grow.
“We are scaling our business and needed to find a company who understood the challenges we were faced with. After speaking to five other companies, APH stood out as the business that had the most knowledge and experience.” — Paul Foster
“I have been using APH for 8 years now. They are, and always have been, excellent. Being a small business I do most of the paperwork behind the scenes and they always make sure everything is done correctly and on time.” — Anna Cook
At APH, we offer a free initial consultation with no obligation. You’ll speak to a real accountant who understands consultancy, and come away with a clear picture of what you need and what it would cost.