Self-Employed Tax UK 2026/27 — What You Owe and What You Keep

If you're self-employed in the UK, working out exactly what you owe HMRC — and what you actually keep — can feel complicated. This guide breaks down how self-employed tax works for 2026/27, and introduces our free calculator that does the maths in seconds.

What tax do self-employed people pay?

Unlike employees who have tax deducted automatically through PAYE, self-employed people report and pay their own tax through Self Assessment. There are two main taxes:

• Income Tax — on your taxable profit above the personal allowance
• Class 4 National Insurance — a percentage of your profits

Class 2 NI was abolished from April 2024. You no longer pay the flat weekly charge. If your profits are above £6,845, your National Insurance record is automatically credited for State Pension purposes at no cost.

Income Tax for the self-employed (2026/27)

Income Tax is charged on your profit — your income minus allowable business expenses. The rates are the same as for employees:

If your income exceeds £100,000, your personal allowance reduces by £1 for every £2 over that threshold, disappearing entirely at £125,140.

Class 4 National Insurance (2026/27)

Self-employed people pay Class 4 NI on their profits:

• 6% on profits between £12,570 and £50,270
• 2% on profits above £50,270

Employees pay 8% Class 1 NI on earnings in the same band. Being self-employed saves you 2 percentage points on National Insurance — worth £448 a year on a £35,000 profit.

Self-employed vs employed — the NI comparison

Self-employed takes home £448.60 more purely on lower NI. However, this doesn’t include the value of employer pension contributions, sick pay, employment rights, and other benefits that employed workers receive.

What counts as an allowable expense?

Your taxable profit is your income minus allowable expenses. The key rule: the expense must be wholly and exclusively for business purposes. Common allowable expenses include:

• Office costs — stationery, software, broadband
• Business travel — fuel, public transport, hotels (not commuting)
• Stock and materials bought to sell
• Marketing and advertising costs
• Accountancy and professional fees
• A proportion of home running costs if you work from home
• Equipment and tools used for the business

How Self Assessment works

Self-employed people file a Self Assessment tax return once a year. Key deadlines:

Payments on account — the one that catches people out

If your tax bill is over £1,000, HMRC requires you to make advance payments towards next year’s bill. Each payment is 50% of your previous year’s bill, due in January and July.

In your first full year of trading, this means January can bring: your current year’s full tax bill plus the first payment on account. On a £35,000 profit, that’s around £5,832 in tax plus £2,916 payment on account — nearly £8,750 due at once.

The rule of thumb: set aside 25–30% of every payment you receive. Every invoice paid. Every time.

Making Tax Digital — from April 2026

From April 2026, sole traders and landlords with income over £50,000 must keep digital records and submit quarterly updates to HMRC using MTD-compatible software, replacing the single annual return. The threshold drops to £30,000 from April 2027.

A worked example — £40,000 income, 2026/27

Income: £40,000. Allowable expenses: £5,000. Taxable profit: £35,000.

Use the free self-employed tax calculator

Enter your income and outgoings and get your estimated take-home, tax bill, and payment on account schedule in seconds. Covers 2026/27 and recent previous years.

→ Try the free self-employed tax calculator

Frequently asked questions

Do self-employed people pay less National Insurance than employees?

Yes — Class 4 NI for the self-employed is 6% on profits between £12,570 and £50,270. Employees pay 8% Class 1 NI on the same band. On a £35,000 profit that’s a saving of £448.60 a year.

Is Class 2 NI still paid in 2026/27?

No — Class 2 NI was abolished from April 2024. If your profits exceed £6,845 your State Pension record is automatically credited without any payment.

What is a payment on account?

If your Self Assessment tax bill exceeds £1,000, HMRC requires advance payments towards next year’s bill. Each is 50% of your previous year’s bill, due 31 January and 31 July. In your first year this can result in a large combined payment in January.

How much should I set aside for tax?

Set aside 25–30% of every payment you receive if you’re in the basic rate band. This covers income tax, Class 4 NI, and gives you a buffer for payments on account.

What counts as a business expense?

Any cost that is wholly and exclusively for business purposes — equipment, software, business travel, marketing, professional fees, and a proportion of home costs if you work from home.

Does the Making Tax Digital change affect me?

From April 2026, if your self-employment income exceeds £50,000 you must keep digital records and submit quarterly updates to HMRC. The threshold drops to £30,000 from April 2027.

This post is for general information only and does not constitute financial or tax advice. Always consult a qualified accountant or visit HMRC.gov.uk for the latest information.