How self-employed tax works in 2025/26
As a UK sole trader, you pay two taxes on your business profits: income tax and Class 4 National Insurance. Both are declared on your Self Assessment return and paid to HMRC by 31 January following the tax year.
Your taxable profit is your turnover minus allowable business expenses. Then the tax bands layer on top: your personal allowance of £12,570 is tax-free, the basic rate of 20% applies to profits between £12,570 and £50,270, and higher and additional rates kick in above that.
Income tax bands for 2025/26
England, Wales and Northern Ireland use the same bands. Scotland has its own set — check our Scottish salary calculator if you live there.
| Band | Profit range | 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% |
The personal allowance tapers by £1 for every £2 of profit above £100,000 — which means a marginal effective tax rate of 60% between £100k and £125,140 once you add in the lost allowance.
Class 4 National Insurance
Sole traders pay Class 4 NI on the same profit figure that income tax applies to, but with its own two-rate structure for 2025/26:
| Band | Profit range | Rate |
|---|---|---|
| Below threshold | Up to £12,570 | 0% |
| Main rate | £12,571 – £50,270 | 6% |
| Upper rate | Over £50,270 | 2% |
Class 2 NI was abolished from 6 April 2024 for most self-employed earners with profits above the Small Profits Threshold (£6,845 for 2025/26). You still get state pension and benefit credits for free — but the £3.45/week payment no longer applies. If your profits are below £6,845, you can still make voluntary Class 2 contributions to maintain your state pension record.
What counts as an allowable expense
HMRC's rule is that an expense must be incurred wholly and exclusively for business purposes. The most common allowable expenses for UK sole traders are:
- Office and equipment — stationery, software subscriptions, computer equipment, phone bills for business lines.
- Travel — 45p per mile for the first 10,000 business miles, 25p per mile after, or actual running costs with mileage logs.
- Home office — HMRC's simplified flat rate (£10–£26/month depending on hours worked) or a proportion of actual bills.
- Professional fees — accountancy, legal fees for business purposes, trade subscriptions.
- Marketing and advertising — website hosting, paid ads, printed materials.
- Training — provided it updates existing skills, not training for a new trade.
A freelancer on £60,000 turnover with £4,000 of allowable expenses has £56,000 of taxable profit. After the £12,570 personal allowance, they pay income tax of £9,832 (20% on the first £37,700, 40% on the remaining £5,730) plus Class 4 NI of £2,377 — a total tax bill of £12,209, leaving £43,791 net. That's an effective tax rate of 20.3% on turnover.— GoForma technical team, 2025/26 tax year modelling
How pension contributions affect your tax
If you pay into a personal pension, you get income tax relief at your marginal rate — but this is delivered differently depending on your scheme. Most self-invested personal pensions use relief at source: you pay from post-tax income, the provider grosses up at 20%, and you claim the remaining higher-rate relief through your Self Assessment.
Important: pension contributions reduce your income tax bill but not your Class 4 NI. Unlike employed earners who can salary-sacrifice and save on NI, self-employed pension relief is income-tax-only.
When and how to pay
Self Assessment payments for the 2025/26 tax year are due by 31 January 2027. If your tax bill exceeds £1,000, HMRC will also ask for payments on account: a 50% advance payment by 31 January 2027 and another 50% by 31 July 2027, both going towards your 2026/27 bill. Plan for this — it catches first-time Self Assessment filers off-guard almost every year.