SiteIt's a wet Sunday in October. You spent April to July on agency PAYE cover at a food plant. Since August you've been doing breakdowns direct, invoicing in your own name. The money's been good.
Then someone on site asks if you've registered for Self Assessment yet. You haven't. You weren't sure you needed to.
Most contract engineers get through the return itself without much trouble. What catches them is the first bill. It lands in January, it's bigger than they planned, and it has half of next year's tax stuck on the end.
Do you need to file?
You must send a tax return if you were self-employed as a sole trader and earned more than £1,000* in the tax year, before expenses (GOV.UK). Mixed years count. Agency PAYE pay has its tax taken off before it reaches you. The direct work on top is what puts you in the system.
If this is your first return, you had to tell HMRC by 5 October* (GOV.UK). If you missed it, register now. HMRC will give you a filing deadline 3 months* from the date of its letter. But the tax is still due by 31 January 2027* (GOV.UK). Register late and don't pay in full by then, and you may get a failure to notify penalty on top (GOV.UK).
Setting up as a sole trader engineer covers the registering and record keeping from the start.
The dates
For the 2025 to 2026 tax year:
- paper returns must reach HMRC by 31 October 2026*
- online returns are due by 31 January 2027*
- the tax is due by 31 January 2027* as well
- if you make payments on account, the second one is due by 31 July*
All from GOV.UK. If you'd rather pay through your tax code, the online return has to be in by 30 December 2026*.
We'd file online in November, not January. You find out what you owe while there's still time to find it.
The first-year bill
Payments on account are advance payments towards next year's bill. Each one is half of the tax you owed last year, due on 31 January and 31 July* (GOV.UK).
In your first year, nobody has paid any on account yet. So on 31 January you pay the whole of this year's bill plus the first payment on account for next year. GOV.UK's own example is a £3,000 bill that means paying £4,500 in January, then another £1,500 in July.
That's the shock. You budgeted for one year's tax and HMRC wants one and a half.
You don't have to make payments on account if last year's bill was under £1,000*, or if more than 80%* of your tax was already taken through your tax code (GOV.UK). An engineer who did a few direct jobs alongside a staff role may fall under that line. Someone doing contract work full time won't.
If you know next year's income will be lower, you can ask HMRC to reduce your payments on account. Get it wrong and you'll pay interest on the difference.
What the tax actually is
Income Tax for 2026 to 2027 starts after a £12,570* Personal Allowance. Then it's 20%* up to £50,270* and 40%* above that (GOV.UK). Scotland has different bands.
On top of that comes Class 4 National Insurance on your profits: 6%* between £12,570 and £50,270*, and 2%* above (GOV.UK). It goes through the same return.
Profit is what's left after your allowable expenses, so the receipts matter. Fuel, PPE, tools, insurance and refresher training can all count. A course that keeps your current skills up to date, such as the 18th Edition for an electrical engineer, can count too (GOV.UK). Expenses you can and can't claim goes through the list. If you travel to a lot of different sites, mileage and travel is worth reading before you add up the miles.
Late costs more than you think
Miss the filing deadline and there's a £100* penalty straight away. After 3 months it's £10* a day, up to £900*. After 6 months there's a further 5% of the tax due or £300*, whichever is greater, and the same again at 12 months (GOV.UK).
Paying late is separate. You get 5%* of the unpaid tax at 30 days, 6 months and 12 months, plus interest.
So a return that's six months late on a modest bill can cost you more in penalties than the job that caused the delay paid. Nobody's busy enough for that.
If you can't pay it all
Tell HMRC early. If you can't pay what you owe, you may be able to set up a payment plan, known as Time to Pay (GOV.UK).
Better still, don't get there. You can set up a Budget Payment Plan and pay weekly or monthly by Direct Debit towards the next bill. You have to be up to date with your last bill to start one.
Our view: from the first invoice, move a slice of every payment into a separate savings account and leave it there. Work out the slice from your own profit and the rates above. Then add a bit for the first payment on account. Put that into your day rate too, because the site isn't paying your tax.
Keep the paperwork
Keep your records for at least 5 years* after the 31 January deadline for that tax year (GOV.UK). If you spot a mistake after filing, you can correct the return within 12 months* of the deadline (GOV.UK).
Making Tax Digital is coming for more engineers. If your qualifying income was over £50,000* in 2024 to 2025, you should already be using it from 6 April 2026*. Over £30,000* in 2025 to 2026 means 6 April 2027* (GOV.UK). Digital records now will save you a rush later.
What to do on Monday
- If this is your first year with direct work, register for Self Assessment today.
- Pull your invoices and receipts into one place, and file online in November.
- Work out your bill plus the first payment on account, and check you'll have it by 31 January.
- Open a tax savings account and move a set slice of every payment into it.
* Self Assessment deadlines, the £1,000 threshold, penalty amounts, payments on account rules, Income Tax and National Insurance rates, record-keeping and correction periods, and Making Tax Digital dates and thresholds correct as of 12 October 2026. Check GOV.UK's Self Assessment deadlines and payments on account for the latest.