Self-Employed Tax 2025/26: Complete Guide to Tax, NI & Expenses

Over 4.3 million people in the UK are self-employed. If you're one of them — whether freelancing, contracting, running a side hustle, or operating as a sole trader — understanding your tax obligations is essential. Unlike employees who have tax deducted automatically through PAYE, you're responsible for calculating and paying your own tax through Self Assessment.

Self-Employed vs Employed: Key Differences

Feature	Employed (PAYE)	Self-Employed
Tax collection	Automatic via payslip	Self Assessment tax return
NI class	Class 1 (8%)	Class 2 (flat rate) + Class 4 (6%/2%)
Expenses	Limited (mostly employer-provided)	Wide range of allowable business expenses
Payment timing	Monthly (same month as earned)	January and July (payments on account)
Holiday/sick pay	Statutory entitlement	None
Pension	Auto-enrolment (employer contributes)	Your responsibility entirely

Income Tax for Self-Employed

Self-employed income tax works exactly the same as employed income tax — the rates and bands are identical:

Band (England/Wales/NI)	Taxable Profit	Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571 – £50,270	20%
Higher Rate	£50,271 – £125,140	40%
Additional Rate	Over £125,140	45%

If you're in Scotland, Scottish income tax rates apply to your self-employed profits.

The key difference: tax is calculated on your profit (income minus allowable expenses), not your total revenue. This is where self-employment offers a significant advantage over employment.

National Insurance for Self-Employed

Self-employed people pay two classes of National Insurance:

Class 2 NI

Rate: £3.45 per week (£179.40/year)
Threshold: Only due if profits exceed £6,725/year (the Small Profits Threshold)
Purpose: Counts towards state pension qualifying years
If profits are below £6,725: You can pay voluntarily to protect your pension record

Class 4 NI

Main rate: 6% on profits between £12,570 and £50,270
Additional rate: 2% on profits above £50,270
Paid through: Self Assessment (included in your tax bill)

Note that self-employed NI rates are lower than employee Class 1 rates (6% vs 8%), and there's no employer NI contribution. However, you also don't get employer pension contributions, sick pay, or holiday pay — so the total "cost" of self-employment is often higher than it appears.

Self-Employed Tax Example: £40,000 Profit

Tax/NI	Calculation	Amount
Income Tax	(£40,000 - £12,570) × 20%	£5,486.00
Class 2 NI	£3.45 × 52 weeks	£179.40
Class 4 NI	(£40,000 - £12,570) × 6%	£1,645.80
Total tax bill		£7,311.20
Take-home		£32,688.80

For comparison, an employee earning £40,000 pays £5,486 income tax + £2,194 Class 1 NI = £7,680 total — so the self-employed person pays slightly less in NI but gets fewer benefits.

Allowable Business Expenses

This is where self-employment gets interesting. You can deduct legitimate business expenses from your income before calculating tax. Common allowable expenses:

Office and Premises

Home office costs — Proportion of rent/mortgage interest, council tax, utilities, broadband based on business use. Or use the simplified flat rate: £6/week (£312/year) with no receipts needed, or £26/month if you work 25-50 hours from home, £18/month for 10-25 hours.
Rented office/co-working space — Fully deductible
Office furniture and equipment — Desks, chairs, shelving (capital allowances for items over £100)

Technology and Tools

Computer, laptop, tablet — If used solely for business, 100% deductible. If mixed use, claim the business proportion.
Software subscriptions — Accounting software, design tools, project management, cloud storage
Phone costs — Business proportion of your phone contract, or a separate business phone
Website hosting and domains

Travel

Business mileage — 45p per mile for the first 10,000 miles, 25p thereafter. Keep a log of business journeys.
Public transport — Train, bus, and taxi fares for business travel
Accommodation — Hotel costs for business trips away from your normal place of work
Meals on business trips — Reasonable costs while travelling (not commuting or working from your regular location)

Professional and Financial

Accountancy fees — Tax return preparation, bookkeeping
Professional subscriptions — Industry bodies, professional memberships
Insurance — Professional indemnity, public liability, business contents
Bank charges — On your business bank account
Training — Courses that maintain or update existing skills (not new career training)

What You Can't Claim

Commuting costs — Travel between home and your regular place of work
Clothing — Unless it's specialist protective clothing or a uniform (a suit doesn't count)
Personal expenses — Even if you discuss work over dinner, personal meals aren't deductible
Fines and penalties — Parking tickets, HMRC penalties, etc.
Client entertainment — You can't claim for taking clients out for meals or drinks

The Trading Allowance

If your self-employed income is less than £1,000 per year, you don't need to register with HMRC or file a tax return — this is the Trading Allowance. It's useful for occasional freelancing, selling on eBay, or casual work.

If you earn slightly above £1,000, you can choose to use the Trading Allowance instead of claiming actual expenses — deduct £1,000 flat instead of tracking individual costs. Only use this if your actual expenses are less than £1,000.

Self Assessment: Filing and Payment Deadlines

Deadline	What's Due
5 October (year after)	Register for Self Assessment if you're newly self-employed
31 October	Paper tax return deadline (rarely used now)
31 January	Online tax return deadline + payment of tax owed + first payment on account
31 July	Second payment on account

Payments on Account

If your Self Assessment tax bill exceeds £1,000 (and less than 80% of your tax was collected at source through PAYE), HMRC requires "payments on account" — advance payments towards next year's tax bill. Each payment is 50% of the previous year's total tax bill.

Example: Your 2024/25 tax bill is £6,000. On 31 January 2026, you pay:

£6,000 — Settlement of 2024/25 tax
£3,000 — First payment on account for 2025/26
Total due 31 January: £9,000

Then on 31 July 2026, you pay another £3,000 (second payment on account). Your first year of Self Assessment can be a shock — you're effectively paying 18 months of tax at once.

Making Tax Digital (MTD)

From April 2026, self-employed individuals and landlords with income over £50,000 must use Making Tax Digital for Income Tax. This means:

Using compatible accounting software (Xero, QuickBooks, FreeAgent, etc.)
Submitting quarterly updates to HMRC digitally
Filing a final declaration instead of a traditional tax return

The threshold drops to £30,000 from April 2027. Even if you're below these thresholds, using accounting software now is good practice.

Self-Employed Pension Options

Unlike employees, there's no auto-enrolment for the self-employed. You're entirely responsible for your own retirement savings. Options include:

Personal pension or SIPP — You get tax relief at your highest rate. Contributing £80 puts £100 in your pension (basic rate). Higher-rate taxpayers claim additional relief via Self Assessment.
Workplace pension — If you also have employed income, you may already have one. You can contribute to both.
ISA — Tax-free savings but no tax relief on contributions. More flexible than a pension.

A self-employed person earning £40,000 who contributes £4,000/year to a pension effectively pays £3,200 after basic rate relief — reducing their taxable profit and saving NI too.

Common Self-Employed Tax Mistakes

Not saving for tax: Set aside 25-30% of your profits into a separate account. Your first payment (including payments on account) can be larger than expected.
Missing deadlines: Late filing = £100 penalty immediately, escalating to daily penalties and percentage surcharges. Late payment = 5% surcharge at 30 days, 6 months, and 12 months.
Not claiming all expenses: Many self-employed people miss legitimate deductions. Keep all receipts and use accounting software.
Mixing personal and business finances: Get a separate business bank account. It makes bookkeeping vastly easier and more credible in case of an HMRC enquiry.
Ignoring pension planning: Without employer contributions, you need to save significantly more to achieve the same retirement income as an employee.

Our salary calculator shows take-home pay for employed income. For self-employed tax calculations, the principles are similar — you can use our calculator with your net profit as the "salary" to get an approximate tax figure, though self-employed NI rates differ slightly. See our NI guide for the exact self-employed rates.