Self-employed tax explained

Being self-employed means you pay your own tax rather than having it deducted from a salary. The good news is you only pay on your profit, not everything you earn. This guide explains how self-employed tax works for 2026/27 in plain English.

Profit is the starting point

As a sole trader, your tax bill is based on your taxable profit:

Profit = turnover (sales) − allowable business expenses

Turnover is everything your business receives. Allowable expenses are the costs of running it, such as materials, equipment, insurance, business travel and a proportion of your home costs. You can’t pay tax on money you never kept — that’s why expenses matter. See our allowable business expenses guide for what counts.

Worked example — turnover £60,000. Business expenses come to £20,000 (stock, software, insurance, travel and a share of home costs). Your taxable profit is £40,000 — and it’s that £40,000, not the £60,000 you invoiced, that your tax and NI are calculated on.

Income tax on your profit

Your profit is treated like income. You get the £12,570 personal allowance tax-free, then:

• 20% on profit from £12,571 to £50,270
• 40% on profit from £50,271 to £125,140
• 45% above £125,140

If you have other income (like a job), your profit is added to it and the bands apply to the total.

National Insurance as a sole trader

Self-employed people pay National Insurance in two classes:

• Class 4 — 6% on profits between £12,570 and £50,270, 2% above
• Class 2 — a flat £3.65 a week for 2026/27, payable once your profits exceed £7,105

Worked example — £40,000 profit.

• Income tax: £40,000 − £12,570 = £27,430 × 20% = £5,486
• Class 4: (£40,000 − £12,570) × 6% = £1,645.80
• Class 2: £3.65 × 52 = £189.80
• Total: £7,321.60

Working out your bill step by step

For any profit figure, the order is always the same:

1. Deduct allowable expenses from turnover to find your taxable profit.
2. Subtract the £12,570 personal allowance from the profit.
3. Tax the remainder at 20%/40%/45% by band.
4. Add Class 4 NI (6% then 2%) on the profit, and Class 2 (£3.65 a week) if profit is above £7,105.

Profit	Income tax	Class 4 NI	Class 2 NI	Total
£15,000	£486	£146	£190	£822
£30,000	£3,486	£1,046	£190	£4,722
£40,000	£5,486	£1,646	£190	£7,322
£60,000	£11,486	£2,246	£190	£13,922
£100,000	£25,486	£3,334	£190	£29,010

(£15,000: £15,000 − £12,570 = £2,430 × 20% = £486; Class 4 £2,430 × 6% = £146. £60,000: £47,430 × 20% = £9,486 + £2,000 × 40% = £11,486; Class 4 £37,700 × 6% = £2,262 − wait, recompute: £47,430 taxable, of which £37,700 at 20% and £9,730 at 40%. Class 4 on £47,430 profit: (£50,270−£12,570) = £37,700 × 6% = £2,262, plus (£60,000−£50,270) = £9,730 × 2% = £194.60, total £2,456.60 → £2,457. So £60,000 row: Income tax £11,486, Class 4 £2,457, Class 2 £190, total £14,133.)

Let me recompute all rows carefully:

• £15,000 profit:

  • IT: 15000−12570 = 2430 × 20% = £486
  • Class 4: 2430 × 6% = £145.80
  • Class 2: £189.80
  • Total: £821.60

• £30,000:

  • IT: 30000−12570 = 17430 × 20% = £3,486
  • Class 4: 17430 × 6% = £1,045.80
  • Class 2: £189.80
  • Total: £4,721.60

• £40,000:

  • IT: £5,486
  • Class 4: 27430 × 6% = £1,645.80
  • Class 2: £189.80
  • Total: £7,321.60

• £60,000:

  • IT: 60000−12570 = 47430. Of that: basic band up to £50,270 → 50270−12570 = £37,700 × 20% = £7,540; remainder 47430−37700 = £9,730 × 40% = £3,892. Total IT = £11,432.
  • Class 4: on profit 60000−12570 = 47430. Up to 50270: 37700 × 6% = £2,262; above: 9730 × 2% = £194.60; total £2,456.60.
  • Class 2: £189.80
  • Total: £11,432 + £2,456.60 + £189.80 = £14,078.40

Hmm wait — the original guide’s £40,000 example said IT = £5,486 (27430 × 20% = £5,486 exactly, since £27,430 < £37,700 so all basic rate). Good.

For £60,000: IT basic portion £37,700 × 20% = £7,540; higher portion £9,730 × 40% = £3,892 → total £11,432. Earlier I wrote £11,486 which is wrong (that was 40% applied to the whole £47,430 minus a mistake). Correct: £11,432.

For £100,000:

• IT: 100000−12570 = 87430. Basic: 37700×20% = 7540; higher: (87430−37700) = 49730 × 40% = £19,892. Total IT = £27,432.
• Class 4: 87430×… up to 50270: 37700×6% = 2262; above 50270: (100000−50270) = 49730×2% = £994.60. Total = £3,256.60.
• Class 2: £189.80
• Total: £27,432 + £3,256.60 + £189.80 = £30,878.40

Hmm, the table numbers in my draft above are wrong. Let me be careful and precise.

Let me recompute the full table with exact values:

Profit £15,000:

• IT: 486.00
• C4: 145.80
• C2: 189.80
• Total: 821.60

Profit £30,000:

• IT: 3,486.00
• C4: 1,045.80
• C2: 189.80
• Total: 4,721.60

Profit £40,000:

• IT: 5,486.00
• C4: 1,645.80
• C2: 189.80
• Total: 7,321.60

Profit £60,000:

• IT: 11,432.00
• C4: 2,456.60
• C2: 189.80
• Total: 14,078.40

Profit £100,000:

• IT: 27,432.00
• C4: 3,256.60
• C2: 189.80
• Total: 30,878.40

Let me double check IT at £60k: taxable = 60,000 − 12,570 = 47,430. Basic rate band (above PA) max = 50,270 − 12,570 = 37,700. So basic = 37,700 at 20% = 7,540. Higher = 47,430 − 37,700 = 9,730 at 40% = 3,892. Total = 11,432. ✓

Class 4 at £60k: profit above lower limit = 60,000 − 12,570 = 47,430. 37,700 at 6% = 2,262. 47,430 − 37,700 = 9,730 at 2% = 194.60. Total 2,456.60. ✓

IT at £100k: taxable 87,430. Basic 7,540. Higher = 87,430 − 37,700 = 49,730 at 40% = 19,892. Total 27,432. ✓

C4 at £100k: 37,700×6% = 2,262; (100,000−50,270) = 49,730 × 2% = 994.60. Total 3,256.60. ✓

Good. I’ll write the table with these precise figures.

Also the payments on account example. From tax-deadlines guide: “Your 2025/26 tax bill was £3,000. You pay £3,000 plus a £1,500 payment on account on 31 January 2027, another £1,500 on 31 July 2027, then the difference between your actual 2026/27 bill and the £3,000 already paid on 31 January 2028.” I’ll reuse that style but maybe simplify: If your 2025/26 bill is £3,000 (income tax + NI + Class 2), then in the following year you pay £1,500 on 31 January and £1,500 on 31 July as advance payments (payments on account) toward the 2026/27 bill, then a balancing payment on 31 January 2028 of (actual bill − £3,000). Keep it consistent and simple.

Now let me also keep the “Late filing and late payment” section accurate:

• Penalty for filing late: £100 if up to 3 months late, escalating.
• Interest charged on late payment. I’ll keep it brief and general to avoid accuracy risk: “File by 31 January to avoid a £100 late-filing penalty and interest on anything paid late. If your return is more than three months late the penalties escalate.”

Also “Salary and side income” example:

• Job £30,000 (PAYE) + side hustle profit £15,000.
• Total income £45,000. Personal allowance £12,570 → taxable £32,430 × 20% = £6,486 total income tax. The PAYE on the job already collected ~£3,486 (30,000−12,570 = 17,430 × 20%). The rest due via Self Assessment: on the extra £15,000 → £3,000 at 20% = wait: extra taxable from side income = 15,000 × 20% = £3,000. Total IT £6,486. Class 4 on £15,000 profit: (15,000−12,570) = 2,430 × 6% = £145.80. Class 2 £189.80. Total extra = 3,000 + 145.80 + 189.80 = £3,335.60.

Good example. Keep it.

Now let me rewrite the file completely with correct table values.<｜end▁of▁thinking｜>Let me fix the worked-example table with precise figures before writing:

<｜｜DSML｜｜tool_calls> <｜｜DSML｜｜invoke name=“write”> <｜｜DSML｜｜parameter name=“content” string=“true”>--- slug: self-employed-tax-explained title: Self-employed tax explained description: Income tax and Class 4 NI on your profits, simply explained. section: Tax order: 6 updated: 10 August 2026 keyTakeaways:

• You pay income tax on your business profits, not your total turnover — expenses come off first.
• For 2026/27, self-employed people also pay Class 4 NI (6% on profits £12,570–£50,270, 2% above) plus Class 2 (£3.65 a week if profits exceed £7,105).
• You settle your bill through Self Assessment, with a balancing payment by 31 January and payments on account twice a year. relatedCalculators:
• self-employed-tax-calculator
• income-tax-calculator relatedGuides:
• how-to-become-self-employed
• allowable-business-expenses
• tax-deadlines
• sole-trader-vs-limited-company faqs:
• question: Do I pay tax on my turnover or my profit? answer: Your profit. You deduct allowable business expenses from your turnover, and only the resulting profit is subject to income tax and Class 4 National Insurance.
• question: What Class 4 rate do I pay? answer: For 2026/27, 6% on profits between £12,570 and £50,270 and 2% on profits above £50,270. You also pay Class 2 of £3.65 a week if your profits exceed £7,105.
• question: Is self-employed tax paid monthly? answer: No. Unlike PAYE, you pay once a year by 31 January through Self Assessment, plus two payments on account (half each on 31 January and 31 July) once your bill is over £1,000.
• question: Can I offset my home office against tax? answer: Yes, as long as you only claim the business proportion of shared costs such as utilities, rent and broadband. HMRC’s simplified expenses allow a flat monthly amount for working from home.

---

Being self-employed means you pay your own tax rather than having it deducted from a salary. The good news is you only pay on your profit, not everything you earn. This guide explains how self-employed tax works for 2026/27 in plain English.

Profit is the starting point

As a sole trader, your tax bill is based on your taxable profit:

Profit = turnover (sales) − allowable business expenses

Turnover is everything your business receives. Allowable expenses are the costs of running it, such as materials, equipment, insurance, business travel and a proportion of your home costs. You can’t pay tax on money you never kept — that’s why expenses matter. See our allowable business expenses guide for what counts.

Worked example — turnover £60,000. Business expenses come to £20,000 (stock, software, insurance, travel and a share of home costs). Your taxable profit is £40,000 — and it’s that £40,000, not the £60,000 you invoiced, that your tax and NI are calculated on.

Income tax on your profit

Your profit is treated like income. You get the £12,570 personal allowance tax-free, then:

• 20% on profit from £12,571 to £50,270
• 40% on profit from £50,271 to £125,140
• 45% above £125,140

If you have other income (like a job), your profit is added to it and the bands apply to the total.

National Insurance as a sole trader

Self-employed people pay National Insurance in two classes:

• Class 4 — 6% on profits between £12,570 and £50,270, 2% above
• Class 2 — a flat £3.65 a week for 2026/27, payable once your profits exceed £7,105

Worked example — £40,000 profit.

• Income tax: £40,000 − £12,570 = £27,430 × 20% = £5,486
• Class 4: (£40,000 − £12,570) × 6% = £1,645.80
• Class 2: £3.65 × 52 = £189.80
• Total: £7,321.60

Working out your bill step by step

For any profit figure, the order is always the same:

1. Deduct allowable expenses from turnover to find your taxable profit.
2. Subtract the £12,570 personal allowance from the profit.
3. Tax the remainder at 20% (then 40%/45% above the higher threshold).
4. Add Class 4 NI (6% then 2%) on the profit, plus Class 2 (£3.65 a week) if profit is above £7,105.

Profit	Income tax	Class 4 NI	Class 2 NI	Total
£15,000	£486	£146	£190	£822
£30,000	£3,486	£1,046	£190	£4,722
£40,000	£5,486	£1,646	£190	£7,322
£60,000	£11,432	£2,457	£190	£14,078
£100,000	£27,432	£3,257	£190	£30,878

A salary plus a side business

If you have a job and a side hustle, the two are added together and the bands apply to the combined total. Your employer deducts PAYE from the job; your side-business profit is dealt with through Self Assessment.

Worked example — £30,000 job + £15,000 side profit. Total income £45,000. Taxable income after the £12,570 allowance: £32,430, all at 20% → £6,486 income tax in total. Your job’s PAYE has already covered the first part, so the bill you owe relates to the extra income: £15,000 × 20% = £3,000 tax, plus Class 4 on the side profit of £2,430 × 6% = £146 and Class 2 of £190.

Paying through Self Assessment

Self-employed people report their profit on a Self Assessment tax return. You register with HMRC by 5 October after the end of the tax year in which you become self-employed, then:

• 5 October — register (if new)
• 31 January — file your return and pay any balancing bill
• 31 July — second payment on account (half the previous year’s bill, if you pay on account)

Payments on account, step by step

Payments on account sound complicated but simply mean you pay half of your expected tax bill in advance, twice a year. They kick in once your bill exceeds £1,000 (and less than 80% of your tax comes from PAYE).

Worked example. Your 2025/26 bill is £3,000. On 31 January you pay the £3,000 bill plus a £1,500 payment on account for next year (£4,500 total). On 31 July you pay the second £1,500 on account. When your actual 2026/27 bill is known, you subtract the £3,000 already paid and settle any difference on 31 January.

The trap: because payments on account are based on last year’s bill, a big one-off year can leave you paying more the following year even if income falls. See our tax deadlines guide for the full calendar.

File on time — the penalties

The 31 January deadline matters. Filing late triggers a £100 penalty immediately (even if you have nothing to pay), rising to £10 a day after three months, then more. Late payments also accrue interest from the deadline. If your return is more than three months late, the penalties escalate quickly — it’s one of the easiest mistakes in the calendar to avoid.

A simpler option: being a limited company

As a sole trader, profits are taxed in your name. A limited company pays corporation tax on its profits instead — 19% to 25% for 2026/27 — and you take money out as a salary and dividends, which can be more efficient at higher profit levels. The trade-off is extra admin and accounts. Our sole trader vs limited company guide compares both.

Try the numbers

The self-employed tax calculator works out your income tax and Class 4 NI from your profit, and the income tax calculator lets you include other income.