Self-Employed Tax UK 2026/27: Income 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%/2%)	Class 4 (6%/2%); Class 2 no longer payable by most
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 (2026/27, unchanged from 2025/26):

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

Since April 2024, most self-employed people pay only one class of National Insurance:

Class 2 NI

No longer payable by most self-employed people since April 2024. If your profits are above the small profits threshold you get a qualifying year for the State Pension automatically, without paying Class 2.
Very low profits: if your profits are below the small profits threshold you can still pay Class 2 voluntarily (£3.50 per week in 2026/27) to protect your State 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%), there is no Class 2 to pay, 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	Not payable	£0.00
Class 4 NI	(£40,000 - £12,570) × 6%	£1,645.80
Total tax bill		£7,131.80
Take-home		£32,868.20

For comparison, an employee earning £40,000 pays £5,486 income tax + £2,194.40 Class 1 NI = £7,680.40 total — so the self-employed person pays about £550 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 2025/26 tax bill is £6,000. On 31 January 2027, you pay:

£6,000 — Settlement of 2025/26 tax
£3,000 — First payment on account for 2026/27
Total due 31 January: £9,000

Then on 31 July 2027, 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.

Quarterly Reporting Under MTD

Since April 2026, self-employed individuals and landlords with qualifying 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 and £20,000 from April 2028. Even if you're below these thresholds, using accounting software now is good practice. Who is in scope, the quarterly deadlines and penalties are in our guide to Making Tax Digital for Income Tax.

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. Note that personal pension contributions do not reduce your Class 4 NI — unlike salary sacrifice for employees, there is no NI saving.

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. If you trade through your own limited company instead, the contractor calculator compares take-home outside IR35, inside IR35 and through an umbrella company.

Self-Employed Tax UK 2026/27: Income Tax, Class 4 NI & Expenses