💼 Self-Employed Tax Overview

As a self-employed person, you pay tax on your profits (income minus expenses) rather than your total income. The same 2025/26 income tax rates apply to the self-employed as to employees. This guide explains how to calculate your tax liability.

Income Tax

Same rates as employed

20%, 40%, 45%

Class 2 NI

Fixed weekly amount

£3.45/week

Class 4 NI

Percentage of profits

9% + 2%

How Self-Employed Tax is Calculated

Step 1: Calculate Your Profits

Formula:

Profits = Total Income - Allowable Expenses

Step 2: Income Tax Calculation

Tax Band	Profit Range	Rate
Personal Allowance	£0 - £12,570	0%
Basic Rate	£12,571 - £50,270	20%
Higher Rate	£50,271 - £125,140	40%
Additional Rate	£125,140+	45%

Step 3: National Insurance

Class 2 National Insurance

• £3.45 per week (£179.40 per year)
• Only if profits exceed £6,515
• Can be paid voluntarily if below threshold

Class 4 National Insurance

• 9% on profits £12,570 - £50,270
• 2% on profits above £50,270
• No NI on first £12,570 of profits

Example Calculation

Freelancer with £40,000 Annual Profits

Income Tax Calculation:

• Personal Allowance: £12,570 (0% tax)

• Basic Rate: £27,430 × 20% = £5,486

• Total Income Tax: £5,486

National Insurance:

• Class 2: £179.40 per year

• Class 4: £27,430 × 9% = £2,468.70

• Total NI: £2,648.10

Summary:

• Gross Profits: £40,000

• Income Tax: £5,486

• National Insurance: £2,648

• Take-home: £31,866

Allowable Expenses

✅ Deductible Expenses

• Office costs (stationery, phone bills)
• Travel costs (fuel, parking, public transport)
• Clothing (uniforms, safety equipment)
• Staff costs (wages, salaries, subcontractors)
• Premises costs (rent, rates, utilities)
• Reselling goods (stock, materials)
• Financial costs (insurance, bank charges)
• Professional fees (accountants, legal)
• Marketing and advertising
• Training and development

❌ Non-Deductible Expenses

• Personal expenses
• Entertainment (unless client entertainment)
• Fines and penalties
• Personal clothing
• Commuting costs (home to permanent workplace)
• Personal phone calls
• Personal use of business assets

Home Office Expenses

Simplified Expenses

Flat Rate Method:

• 25-50 hours/month: £10/month
• 51-100 hours/month: £18/month
• 101+ hours/month: £26/month

No receipts needed!

Actual Costs Method

Calculate proportion of:

• Rent or mortgage interest
• Council tax
• Utilities (gas, electricity, water)
• Internet and phone
• Insurance

Receipts required!

Tax Deadlines & Payments

Self Assessment Deadlines

Paper Returns:

31 October (following tax year)

Online Returns:

31 January (following tax year)

Payment Deadlines

31 January:

Balance of tax due for previous year + First payment on account

31 July:

Second payment on account

Tax Planning Tips

💡 Maximize Your Deductions

• Keep detailed records of all business expenses
• Use simplified expenses for home office if eligible
• Claim for training and professional development
• Consider timing of large purchases
• Use annual investment allowance for equipment
• Make pension contributions to reduce your taxable profits and save for retirement

📊 Planning for Payments

• Set aside 25-30% of profits for tax
• Use a separate business bank account
• Plan for payments on account
• Consider making voluntary Class 2 NI payments
• Use tax-efficient savings accounts

Calculate Your Self-Employed Tax

Use our free calculator to estimate your tax liability and take-home profit

Start Calculating →

Self-Employed Tax Calculator: How to Estimate Your Tax Bill