Self-Employed Tax UK: What You Pay and When

What tax do self-employed people pay?

If you're self-employed as a sole trader, you pay two types of tax on your business profits:

1. Income tax: Same rates as employees, but you calculate and pay it yourself via Self Assessment.
2. National Insurance: Class 2 (fixed weekly amount) and Class 4 (percentage of profits).

You pay tax on your taxable profit (income minus allowable expenses), not your turnover. If your business makes £50,000 turnover but has £20,000 expenses, your profit is £30,000. You pay tax on the £30,000.

Income tax rates 2025-26

Self-employed income tax uses the same bands as PAYE:

Taxable profit	Rate	Annual tax (cumulative)
£0 - £12,570	0%	£0
£12,571 - £50,270	20%	£0 - £7,540
£50,271 - £125,140	40%	£7,540 - £37,488
£125,140+	45%	£37,488+

Personal allowance taper: If your taxable profit exceeds £100,000, your personal allowance reduces by £1 for every £2 over. At £125,140, the personal allowance is zero.

National Insurance (Class 2 and Class 4)

Class 2 NI: Fixed weekly contribution of £3.45 (£179.40 per year) if your profits are £6,725 or more. Collected via Self Assessment. You get state pension credits for paying Class 2.

Class 4 NI: Percentage of profits:

• 9% on profits between £12,570 and £50,270
• 2% on profits above £50,270

Example: Profit of £40,000.

• Class 2: £179.40
• Class 4: 9% of (£40,000 - £12,570) = £2,468.70
• Total NI: £2,648.10
• Income tax: 20% of £27,430 = £5,486
• Total tax + NI: £8,134.10 (20.3% effective rate)

When do you pay?

Self-employed tax is paid via Self Assessment. Key dates:

• 5 April: End of tax year
• 31 October: Deadline for paper Self Assessment return (most people file online)
• 31 January: Deadline for online Self Assessment return + payment of tax owed

Payments on account: If your tax bill exceeds £1,000, HMRC requires you to make advance payments for the following year:

• First payment on account: 31 January (same day as the final payment for the previous year)
• Second payment on account: 31 July

Each payment is 50% of the previous year's tax bill. When you file next year's return, HMRC reconciles the actual tax owed vs payments made, and you pay the balance or get a refund.

Example timeline (2025-26 tax year):

• 31 Jan 2027: File 2025-26 return + pay balance + first payment on account for 2026-27
• 31 July 2027: Second payment on account for 2026-27
• 31 Jan 2028: File 2026-27 return + pay balance (or get refund) + first payment for 2027-28

This means on 31 January, you can owe up to 150% of one year's tax (final balance + 50% advance). Plan cash flow carefully.

What expenses can you claim?

You can deduct allowable expenses that are "wholly and exclusively" for business purposes. Common expenses:

• Office costs: Rent, rates, utilities (or simplified home expenses)
• Travel: Business mileage (45p/mile first 10k miles, 25p after), public transport, parking
• Equipment: Computers, tools, machinery (capital allowances apply)
• Professional fees: Accountant, solicitor, business insurance
• Marketing: Advertising, website, business cards
• Stock and materials: Raw materials, goods for resale
• Staff costs: Wages, employer NI, pensions
• Subscriptions: Professional body memberships, trade magazines

Not allowable: Personal expenses, fines, client entertaining, non-business travel (commuting from home to office counts as personal).

Simplified expenses: HMRC offers flat-rate deductions for home use and vehicles if you don't want to track actual costs. See our guide on simplified expenses for details.

Record keeping requirements

You must keep records of all business income and expenses for at least 5 years after the 31 January Self Assessment deadline. Records can be paper or digital.

What to keep:

• Invoices you issue to customers (sales records)
• Receipts for expenses
• Bank statements showing business transactions
• Mileage logs (dates, destinations, miles)
• Records of stock/inventory

HMRC can open an enquiry into any return and request evidence. If you cannot provide records, HMRC may estimate your profit (and charge penalties).

Making Tax Digital (MTD) for Income Tax

From April 2026, self-employed individuals with income over £50,000 must use MTD-compatible software to keep digital records and submit quarterly updates to HMRC. Those with income over £30,000 must join from April 2027.

MTD does not replace Self Assessment. You still file an annual return, but you must also submit 4 quarterly summaries of income and expenses via software. Penalties apply for late submissions.

If your income is below £30,000, you can continue using spreadsheets or paper records (though HMRC encourages digital record-keeping).

What if you miss the deadline?

Late filing and payment penalties:

• Late return: £100 penalty if filed after 31 January, plus daily penalties after 3 months (£10/day up to £900), plus further penalties after 6/12 months
• Late payment: 5% penalty on unpaid tax at 30 days, 6 months, and 12 months late, plus interest on the unpaid amount

File on time even if you cannot pay. HMRC offers payment plans (Time to Pay) if you contact them before the deadline.