Self-Employed Tax Explained: What You Owe and When

How much tax will I pay if I'm self-employed?

As a sole trader you pay income tax and Class 4 National Insurance on your profit — the money left after deducting allowable business expenses. You pay nothing on the first £12,570 of profit (your Personal Allowance), then income tax at 20%, 40% or 45% in the usual bands.

On top of that, Class 4 NI adds 6% on profit between £12,570 and £50,270 and 2% above £50,270. So a sole trader with £30,000 of profit pays 20% income tax plus 6% Class 4 NI on the slice above £12,570 — roughly £3,486 income tax and £1,046 NI.

Tax is on profit, not turnover

The most important idea in self-employed tax is that you are taxed on profit, not on everything that lands in your business account. Profit is your income minus allowable expenses — the legitimate costs of running your business.

Allowable expenses can include stock, tools and equipment, business travel, a proportion of home and phone costs if you work from home, accountancy fees and business insurance. Keeping good records of these directly reduces your tax bill.

• Stock and raw materials you buy to sell on.
• Business travel, but not your normal commute.
• A reasonable share of home, broadband and phone costs.
• Tools, equipment and software you use for work.
• Accountancy, insurance and bank charges for the business.

Income tax on your profit (2026/27)

Self-employed profit uses exactly the same income tax bands as employees. Your first £12,570 of profit is covered by the Personal Allowance, then each slice above is taxed at the rate for that band.

Class 4 and Class 2 National Insurance

Self-employed people pay Class 4 National Insurance on profit: 6% on profit between £12,570 and £50,270, and 2% on profit above £50,270. It is calculated on the same Self Assessment return as your income tax.

Class 2 NI used to be a separate flat weekly charge. If your profit is above the small profits threshold (£6,725) you no longer have to pay Class 2 but still build your State Pension entitlement. If your profit is below it, you can pay Class 2 voluntarily to protect your record — check the current weekly rate on GOV.UK.

The £1,000 trading allowance

If you earn small amounts from self-employment or a side hustle, the £1,000 trading allowance may mean you owe nothing. You can earn up to £1,000 of trading income in a tax year without paying tax or even registering for Self Assessment.

Above £1,000 you can either deduct your actual expenses or claim the £1,000 allowance instead of expenses — whichever leaves you better off. The flat allowance is simplest if your real costs are low.

Self Assessment: the deadlines that matter

You report self-employed income through Self Assessment. The UK tax year runs from 6 April to 5 April, and there are three dates that catch people out the most.

• 5 October: register for Self Assessment if it's your first year.
• 31 October: deadline for paper tax returns (most people file online instead).
• 31 January: deadline to file online and pay the tax you owe.

Payments on account: why January feels brutal

If your tax bill is over £1,000, HMRC usually asks for 'payments on account' — advance payments towards next year's bill. You pay them in two instalments, on 31 January and 31 July, each being 50% of your previous year's bill.

This means your first January as a profitable sole trader can land a bill of roughly 150% of the tax due: the full amount for the year just gone, plus the first 50% payment on account for the year ahead. Setting aside money as you earn it is the simplest way to avoid a shock.

How to budget for your tax bill

A common rule of thumb is to set aside around 25–30% of your profit for tax and National Insurance, rising if you are a higher-rate taxpayer. Keep it in a separate savings account so it isn't accidentally spent.

Because the rates are tiered, the exact percentage depends on your profit level — our Self-Employed Tax Calculator works out the precise income tax and Class 4 NI on your figure so you can set aside the right amount.

Estimate your self-employed tax bill

Use our Self-Employed Tax Calculator UK: enter your profit after expenses to see your income tax, Class 4 National Insurance and net profit for 2026/27. For National Insurance on its own, or how it differs from employment, see our National Insurance guide. Estimates only — check GOV.UK or speak to an accountant for your exact position.