How much tax will I pay when I’m self-employed?

"Self-employed workers now make up over 4 million of the UK workforce." That's a big number  —  and if you're one of them (or thinking of joining them), you might be wondering: how much tax will I actually have to pay?

Let me walk you through it. I’ve been in your shoes. In fact, when I first started freelancing as a bookkeeper years ago, the tax stuff was what scared me most. But once you break it down, it’s not as scary as it sounds. You just need to know the rules. Here's a full guide to what you'll pay, when, and how to pay less (legally, of course!).

What is the self-employed personal allowance for 2025/26?

Who qualifies for the personal allowance?

Every UK taxpayer gets a personal allowance. For 2025/26, it's £12,570. That means you don't pay any Income Tax on the first £12,570 you earn.

As long as you're under £100,000 in total income, you're good. No forms. No asking for it. It’s automatic.

What happens if my income is over £100,000?

Your allowance shrinks  —  fast. For every £2 you earn over £100,000, you lose £1 of your personal allowance. Earn over £125,140 and it's gone.

How much tax do I pay if I earn £30,000 self-employed?

Income Tax breakdown on £30,000

You start paying Income Tax on anything above £12,570. So:

• Your taxable income is £17,430

• That gets taxed at 20% (basic rate)

• So you pay £3,486 in Income Tax

National Insurance contributions on £30,000

You'll also pay:

• Class 2 NI: about £163.80 for the year

• Class 4 NI: 6% on income over £12,570 = £1,047.60

So altogether, you’re looking at roughly £4,697 in tax and NI on £30,000.

When do I start paying tax as self-employed?

Income thresholds for tax and National Insurance

Once your profits go over £1,000, you need to register for Self Assessment. But tax kicks in only after £12,570. NI starts once you go over that too.

Important tax deadlines

• Register with HMRC: by 5 October after the end of the tax year

• File your tax return: by 31 January

• Pay your tax: also by 31 January (and sometimes 31 July, too, if you pay in advance)

How does the self-employed tax rate work in the UK?

Tax bands for 2025/26

It’s the same bands as employees:

• 0% on first £12,570

• 20% on £12,571 to £50,270

• 40% on £50,271 to £125,140

• 45% on anything over that

Self-employment vs employment tax rates

You pay Income Tax and National Insurance like everyone else, but you handle it yourself  —  no PAYE. And your NI is a bit different (more on that below).

How is self-employed income taxed differently from PAYE?

No automatic tax deduction

When you're employed, your employer takes tax off your pay before you get it. Self-employed? You keep everything upfront, then pay HMRC later. That’s why you need to plan ahead.

Need for Self Assessment

You tell HMRC what you earned. They don’t do it for you. You file a Self Assessment tax return and calculate what you owe. It sounds scary, but it’s really just filling in boxes (or using software or an accountant).

Is the first £1,000 self-employed income tax-free?

How the trading allowance works

Yes! It’s called the trading allowance. If your self-employed income is under £1,000 a year, you don’t need to register with HMRC or file a return. It’s totally tax-free.

When not to use the allowance

But if your expenses are more than £1,000, you're better off not using the trading allowance and claiming actual costs instead. You can’t do both.

What National Insurance do self-employed pay?

Class 2 and Class 4 contributions

• Class 2: fixed weekly rate (about £3.15/week)

• Class 4: a percentage of your profits  —  6% from £12,570 to £50,270

How to calculate what you owe

Your tax return does it for you. You’ll see it added on when you submit the return.

What’s the difference between Class 2 and Class 4 National Insurance?

Earnings thresholds for each class

• Class 2 kicks in if profits > £6,725

• Class 4 starts from £12,570

What each class covers

Class 2 gives you access to State Pension and benefits. Class 4 is just a tax  —  it doesn’t give you any entitlements. Annoying, but true.

Do I have to pay National Insurance if I earn under £12,570?

National Insurance thresholds explained

Yes, but only Class 2 if you earn over £6,725. You’ll skip Class 4.

Exceptions and voluntary contributions

If you're under the threshold but still want to protect your State Pension, you can pay Class 2 voluntarily. Worth it, in many cases.

Can I voluntarily pay National Insurance if self-employed?

Who should consider voluntary payments

If you earn under £6,725 or have patchy income, paying Class 2 NI voluntarily can help you build qualifying years for State Pension.

How to make voluntary Class 2 contributions

Just tick the box in your tax return or speak to HMRC. It’s simple.

What can I claim as expenses when self-employed?

Common allowable expenses

Think of anything you spend wholly and exclusively for business: laptop, stationery, software, advertising, even accountancy fees (yep!).

What HMRC means by "wholly and exclusively"

If it’s part-business, part-personal, only the business bit counts. Keep good records.

Can I claim home office costs as self-employed?

Calculating home office usage

Yes  —  if you work from home regularly. You can claim a portion of rent, electricity, broadband, etc., based on how much space and time you use.

What costs are included?

• Utility bills

• Broadband

• Rent or mortgage interest (but not full mortgage payments)

• Council tax (proportionally)

What is the flat rate home office allowance?

Simplified expenses for home use

Instead of working out exact costs, you can use HMRC's flat rate:

• £10/month for 25–50 hours/week

• £18/month for 51–100 hours/week

• £26/month for 101+ hours/week

When to use flat rate vs actual costs

Use it if you don’t want to faff around with bills. Go actual if your home costs are high.

Can I claim mobile phone bills as a self-employed expense?

Business vs personal use

Yes  —  but only the business part. If you use your mobile 70% for work, you can claim 70% of the cost.

How to apportion the expense

Estimate monthly usage, or keep logs if you want to be more accurate. Don’t go overboard.

What is the mileage allowance for self-employed?

HMRC mileage rates for 2025/26

If you use your car for work:

• 45p/mile for first 10,000 miles

• 25p/mile after that

When to use mileage vs actual vehicle costs

Use mileage if you don’t want to track fuel, MOT, repairs, etc. Use actual costs if your car is expensive to run and used mostly for work.

How do I calculate allowable expenses?

Keeping accurate records

Use apps like QuickBooks, FreeAgent, or spreadsheets. Save receipts. Log mileage. Keep things tidy  —  it pays off.

Tools and software to help

Try 1tap for receipts or use bank feeds in accounting software. It makes tax time much easier.

How can I legally reduce my self-employed tax bill?

We all want to pay the right amount — not a penny more. So how do you trim your tax bill without raising any red flags?

Start with allowable expenses. These are everyday costs of running your business — like tools, subscriptions, stationery, insurance, software, fuel (if you're driving for work), and even your accountant’s fees. They’re fully legit, and HMRC expects you to claim them.

You could also look into contributing to a private pension. Not only are you saving for the future, but you’ll get tax relief on what you contribute — win-win.

And if you’re earning more than, say, £30,000–£40,000 a year, it might be time to ask: Should I set up a limited company?

That brings us to the next point.

Should I go self-employed or set up a limited company?

It depends. Sole traders have simpler paperwork. But limited companies can often be more tax-efficient, especially once your profits grow.

Take me for example: I was earning around £45,000 as a freelance consultant. At that level, switching to a limited company saved me roughly £2,000 a year in tax and National Insurance — just by paying myself a small salary and topping up with dividends (which are taxed at lower rates).

But it does mean more admin — payroll, annual accounts, corporation tax returns. If that sounds like a headache, talk to an accountant before you make the leap.

When should I register for VAT as self-employed?

If your taxable turnover in any 12-month period goes over £90,000 (for 2025/26), you must register for VAT. That includes sales, not profit. So even if your earnings are high but your take-home is low (because of high expenses), you might still need to register.

There’s a deadline too: once you hit that threshold, you must register within 30 days. Miss it, and HMRC can fine you.

Is it worth registering for VAT voluntarily?

Yes, sometimes. If you sell to other businesses that are VAT-registered, they won’t mind paying VAT because they can claim it back.

Also, being VAT registered might make your business look more “official” or established. It depends on your market.

But if you sell directly to the public — like a personal trainer or hairdresser — you might scare off customers if they suddenly have to pay 20% more.

You can also look into the Flat Rate Scheme to simplify things if your turnover is under £150,000.

How do I avoid tax penalties when self-employed?

Simple: stay organised. Use software like QuickBooks, FreeAgent, Xero, or even a decent spreadsheet. Keep receipts. Track invoices. Know your deadlines.

HMRC won’t chase you until you’re late. But once you’re late, they’re not shy about adding interest and penalties.

Top tip? Set reminders for key dates like the 31 January tax deadline. And always file your return — even if you made no profit that year.

Should I use an accountant if I’m self-employed?

If your business is straightforward, you might manage on your own. But the moment things get even slightly complex — VAT, employing someone, larger profits, or multiple income sources — getting an accountant is worth every penny.

They know the system inside out. They’ll make sure you’re not overpaying. And they can save you from nasty surprises.

I used to see an accountant as an expense. Now I see them as an investment.

Do I have to register for VAT if I’m self-employed?

Only if you pass the threshold of £90,000 in turnover in any rolling 12-month period. If you’re under that, it’s optional.

That said, some industries or clients may require you to register, even if you’re below the threshold — especially if you work with public sector organisations or larger firms.

What’s the VAT threshold for 2025/26?

For the tax year 2025/26, the VAT registration threshold is £90,000, and the deregistration threshold is £88,000. These numbers do change from time to time, so keep an eye on HMRC’s updates each April.

Can I charge VAT if I’m not VAT registered?

Nope. That’s illegal.

If you’re not VAT registered, you can’t add VAT to your invoices — and you definitely can’t keep the 20% for yourself. If you do, HMRC will treat it as tax evasion.

When do I need to file my self-assessment?

The Self Assessment deadline for online filing is always 31 January following the end of the tax year. The 2025/26 tax year ends on 5 April 2026, so your tax return must be filed by 31 January 2027.

Paper returns have an earlier deadline — 31 October 2026.

What are the penalties for filing self-assessment late?

Miss the deadline and you’ll get:

• £100 penalty straight away.

• More fines if it’s more than 3 months late.

• Daily penalties of £10 per day after 3 months.

• Up to £900 in daily penalties.

• Then 5% of the tax owed after 6 months.

It stacks up fast. Don't be late.

What happens if I don’t pay my tax bill on time?

You’ll face interest charges — currently around 7.75%, updated every quarter.

If you’re more than 30 days late, HMRC may add a 5% late payment penalty on top.

Can’t afford to pay? You can usually set up a Time to Pay arrangement, which lets you spread payments monthly.

What government help is available for self-employed?

There’s no shortage of schemes — though finding them can feel like a maze.

Some options include:

• Universal Credit (with a Minimum Income Floor)

• New Enterprise Allowance (for new businesses)

• Child Benefit

• Business grants (especially if you’re in tech, innovation, or creative sectors)

It’s always worth checking your local council and business support networks too. Some offer startup grants or training programmes.

Can I claim Universal Credit if I’m self-employed?

Yes, but it’s a bit more complex.

Universal Credit has a Minimum Income Floor (MIF) — an assumed level of earnings. If your business earns less than that, UC might still assess you as earning the MIF.

If your business is new (less than 12 months), the MIF won’t apply while you’re in the “start-up period.”

What happens if I make a loss self-employed?

Good news: if your expenses are higher than your income, you’ve made a loss — and HMRC lets you use that to your advantage.

You can:

• Carry the loss forward and offset it against future profits.

• Offset it against other income in the same tax year (like a part-time job).

• Even offset against past profits in some cases (called “carry back”).

This can lead to a tax refund, or at least reduce what you owe in the future.

Can I get a tax refund if my business makes a loss?

Yes. If you’ve overpaid tax or have other income (say, from employment) to offset the loss against, you could be entitled to a refund.

You’ll need to file your Self Assessment and clearly show the loss. Keep records to back it all up.

What’s the difference between sole trader and self-employed?

All sole traders are self-employed, but not all self-employed people are sole traders.

A sole trader is someone who runs a business as an individual and keeps all the profits (after tax). You’re legally the business.

Self-employed is a broader term. It includes sole traders, freelancers, and even directors of limited companies (who work for their own company).

How do I register as self-employed with HMRC?

You can register online in under 10 minutes.

Go to HMRC’s website, create a Government Gateway account, and choose ‘Register for Self Assessment’.

You’ll get a Unique Taxpayer Reference (UTR) number in the post within 10 days. Keep that safe — you’ll need it for every tax return you ever file.

Do I need to register as self-employed for side income?

Yes, if you earn more than £1,000 in a tax year from that side income.

Below that, you’re covered by the Trading Allowance. But once you go over — even by £1 — you need to register and file a Self Assessment.

Can I be employed and self-employed at the same time?

Absolutely. Lots of people are.

You might have a full-time job and do freelance photography on weekends. Or you run an Etsy shop while working in retail.

You’ll still need to do a Self Assessment to declare your self-employed income, even if your employer handles your PAYE.

How do I keep records for self-employment?

Keep it simple. You need to track:

• Invoices and payments received

• Receipts and expenses

• Bank statements

• Mileage logs (if driving for work)

Use apps like QuickBooks, FreeAgent, or a dedicated spreadsheet. And keep records for at least 5 years after the 31 January deadline.

HMRC may ask to see them anytime.

Final thoughts

Paying tax when you’re self-employed can feel overwhelming at first. But once you get your head around how it all works — your allowances, expenses, and deadlines — it starts to make sense.

It’s your business. Your money. Take the time to understand what you owe and why. And don’t be afraid to get help.

Because the less time you spend worrying about tax, the more time you can spend doing what you love.

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