UK Self-Employed Tax 2026: Income Tax, NI, Allowances and Filing
How self-employed tax actually works in the UK in 2025-26. Income tax bands, the new Class 4 National Insurance rates after the Class 2 abolition, the 50+ legitimate expenses sole traders can claim, the £1,000 trading allowance, MTD for ITSA from April 2026, and worked take-home examples for £30K-£100K profit.
By FreeFinCalc Editorial · Updated April 9, 2026 · UK 2025-26 tax year data
Self-employed people in the UK pay income tax and National Insurance on their profits (income minus allowable expenses), not their turnover. From April 2024 the system was simplified: Class 2 NI was abolished for self-employed people earning more than £6,725 a year (still optional below that), and Class 4 NI was cut from 9% to 6% on profits between £12,570 and £50,270, with 2% above. Income tax bands are the same as for employees. The first £1,000 of trading income is completely tax-free under the trading allowance. Self Assessment returns for the 2025-26 tax year (April 2025 to April 2026) must be filed online by 31 January 2027 with any tax owed paid by the same date. Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory for self-employed and landlords with income above £50,000 from April 2026.
How Self-Employed Tax Is Calculated
For most sole traders the calculation runs: 1) Total income (turnover) for the tax year. 2) Subtract allowable business expenses. 3) The result is your profit. 4) Apply the £12,570 personal allowance against your profit (or your share of it if you have other income). 5) Apply income tax bands. 6) Apply Class 4 National Insurance bands separately. The total tax bill is the sum of income tax and Class 4 NI. There is no PAYE deduction during the year — you pay the full amount in lump sums on 31 January (balancing payment for the previous year) and 31 July (payment on account for the current year), with two payments on account each totalling roughly half of the previous year\u2019s tax bill.
Income Tax and NI Bands for Self-Employed (2025-26)
The same income tax bands apply to the self-employed as to employees, but instead of Class 1 NI (deducted by an employer through PAYE), the self-employed pay Class 4 NI directly through Self Assessment. Class 2 NI (formerly £3.45 a week) was abolished for profits above £6,725 from April 2024.
| Band | Profit range | Income tax | Class 4 NI | Combined effective rate |
|---|---|---|---|---|
| Personal Allowance | Up to £12,570 | 0% | 0% | 0% |
| Basic rate | £12,571 to £50,270 | 20% | 6% | 26% |
| Higher rate | £50,271 to £100,000 | 40% | 2% | 42% |
| Personal allowance taper | £100,000 to £125,140 | 60% effective | 2% | 62% |
| Higher rate (no taper) | £125,140+ (no PA) | 40% | 2% | 42% |
| Additional rate | Over £125,140 | 45% | 2% | 47% |
Worked Take-Home Examples for the Self-Employed (2025-26)
How much you actually keep after tax and Class 4 NI on different profit levels. These assume a sole trader in England with no other income, no student loan, and that profits equal taxable income.
| Annual profit | Income tax | Class 4 NI | Total tax | Take-home |
|---|---|---|---|---|
| £15,000 | £486 | £146 | £632 | £14,368 |
| £25,000 | £2,486 | £746 | £3,232 | £21,768 |
| £35,000 | £4,486 | £1,346 | £5,832 | £29,168 |
| £50,000 | £7,486 | £2,246 | £9,732 | £40,268 |
| £75,000 | £17,432 | £2,746 | £20,178 | £54,822 |
| £100,000 | £27,432 | £3,246 | £30,678 | £69,322 |
| £125,140 | £42,516 | £3,749 | £46,265 | £78,875 |
| £150,000 | £53,703 | £4,246 | £57,949 | £92,051 |
Allowable Business Expenses (Top Categories)
Self-employed people can deduct legitimate business expenses from their turnover before calculating tax. The basic rule is "wholly and exclusively" for business purposes. Common categories: office costs (rent, utilities, broadband, business mobile, stationery, postage, printing); travel costs (mileage at 45p/mile for first 10,000 miles, then 25p/mile; train and air fares, hotel for business trips); business clothing only if it is uniform or protective gear (suits and general clothing not allowable); staff wages, employer NI, pension contributions; financial costs (bank charges on business accounts, accountancy fees, professional indemnity insurance); marketing (website, advertising, business cards, networking event fees); training that maintains existing skills (new skills not deductible); subscriptions to trade and professional bodies; and the £1,000 trading allowance OR actual expenses, whichever is more beneficial.
Making Tax Digital for ITSA (April 2026)
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes mandatory from April 2026 for self-employed people and landlords with combined business and property income over £50,000 a year, and from April 2027 for those over £30,000. Under MTD ITSA, you must keep digital records and file quarterly updates to HMRC plus a final declaration, instead of one annual Self Assessment. Compatible software is required (HMRC has a list of approved providers — Xero, QuickBooks, FreeAgent, and several others). Plan for the transition by adopting compatible software in late 2025 or early 2026 if your turnover is approaching the £50,000 threshold. Penalties for non-compliance start with the first quarter you should have filed.
Frequently Asked Questions
How much can a self-employed person earn before paying tax?+
The £12,570 personal allowance applies to self-employed people just like employees. So a sole trader can earn profits up to £12,570 before paying any income tax. Class 4 National Insurance is also payable only on profits above £12,570 in 2025-26. There is also a £1,000 trading allowance, which means if your total trading income (gross, not profit) is less than £1,000 you do not need to register or file a Self Assessment at all. Above £1,000, you can choose to deduct either the £1,000 allowance or your actual expenses, whichever is more beneficial.
How much National Insurance do self-employed people pay?+
Class 4 NI is payable at 6% on profits between £12,570 and £50,270, then 2% on profits above £50,270. The 6% rate was cut from 9% in April 2024. Class 2 NI (a flat weekly amount of £3.45) was abolished for profits above £6,725 from April 2024 — so most self-employed people no longer pay Class 2. You can still voluntarily pay Class 2 if your profits are below £6,725 to maintain National Insurance contributions for State Pension purposes.
When is the Self Assessment deadline?+
Online Self Assessment for the 2025-26 tax year (April 2025 to April 2026) must be filed by midnight on 31 January 2027, with any tax owed paid by the same deadline. Paper returns must be filed by 31 October 2026. Late filing carries an automatic £100 penalty plus daily fines after 3 months and percentage-based penalties after 6 and 12 months. Late payment of tax accrues interest at the HMRC rate (currently around 7.75%) plus 5% surcharges at 30 days, 6 months and 12 months.
What can I claim as a business expense?+
Anything wholly and exclusively for business purposes. Common allowable expenses: office rent and utilities, business broadband and phone, stationery and postage, business travel (45p/mile for the first 10,000 business miles), accountancy and professional fees, business insurance, advertising and marketing, training to maintain existing skills, subscriptions to trade and professional bodies, computer equipment and software, and a use-of-home allowance (£6 a week flat rate or actual costs apportioned). Items that are NOT allowable: general clothing (only uniforms or protective gear), client entertainment, personal travel, training for new skills, and most start-up costs incurred more than 7 years before trading began.
What is the £1,000 trading allowance?+
The £1,000 trading allowance lets you receive up to £1,000 of trading income (gross, not profit) in a tax year without paying any tax or even needing to register with HMRC. If your trading income is between £1,000 and around £30,000 a year, you can choose to either deduct the £1,000 allowance from your income (instead of itemising actual expenses) or itemise your actual expenses — whichever is higher. Above £30,000 of income, itemising actual expenses is almost always better. The trading allowance is per individual, not per business, so you cannot claim £1,000 multiple times for multiple sources of trading income.
Do I need an accountant if I am self-employed?+
Not legally — anyone can do their own Self Assessment. But for many self-employed people an accountant is worth the £200-£600 a year fee because they typically save you more than that in legitimate expenses you would have missed, plus they save you several hours of stressful form-filling. For very simple sole traders (one income source, few expenses, profit under £30,000) free online tools and HMRC\u2019s guidance may be enough. For VAT-registered businesses, multiple income streams, property income, complex expenses, or anything approaching the higher tax bracket, an accountant pays for themselves several times over.
What is Making Tax Digital for ITSA?+
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC\u2019s programme to digitise tax record-keeping and reporting for the self-employed and landlords. From April 2026, anyone with self-employment and/or rental income totalling more than £50,000 a year must keep digital records and submit quarterly updates to HMRC through approved software, instead of one annual Self Assessment. From April 2027 the threshold drops to £30,000. Approved software providers include Xero, QuickBooks, FreeAgent, Sage, and several others. Plan ahead by adopting compatible software at least 3-6 months before mandation.
How are payments on account calculated?+
If your Self Assessment tax bill exceeds £1,000 in a year, HMRC requires you to make two payments on account towards next year\u2019s estimated tax. Each payment on account is equal to half of the previous year\u2019s tax bill. So if you owed £6,000 for 2024-25, you must pay £3,000 on 31 January 2026 (payment on account 1 for 2025-26), then another £3,000 on 31 July 2026 (payment on account 2 for 2025-26), then a balancing payment based on actual 2025-26 tax owed by 31 January 2027. You can claim to reduce payments on account if you know your income will fall — but if the reduction is too aggressive, HMRC charges interest on the underpayment.
Sources & Disclaimer
Self-employed tax rates and bands: HMRC Self Assessment manual. Class 2 NI abolition: Spring Budget 2024. Class 4 NI rate cut to 6%: Spring Budget 2024 and Autumn Statement 2023. Trading allowance: HMRC BIM86000. Allowable expenses: HMRC Business Income Manual. MTD for ITSA: HMRC Making Tax Digital for Income Tax pages. Self Assessment deadlines: gov.uk. Payments on account: HMRC SAM110000. This article is for educational purposes only and is not personalised tax advice.