📌 Introduction
If you’re self-employed in the UK, one of the most common questions is:
👉 “How much tax will I actually pay?”
The answer depends on your profit, not just your income.
The good news is:
👉 You don’t pay tax on everything you earn.
In this guide, we’ll explain how Self Assessment tax works for self-employed people in the UK, using simple examples so you can understand what to expect.
Please note: the Income Tax rates used in this guide apply to England, Wales and Northern Ireland. Scotland has different Income Tax bands.
💼 Step 1: Your Profit, Not Your Income
When you are self-employed, you are usually taxed on your profit.
👉 Profit = Income – Allowable Business Expenses
Example:
Income: £50,000
Expenses: £10,000
👉 Taxable profit = £40,000
This means you do not pay tax on the full £50,000. You pay tax based on the profit left after allowable expenses.
📊 Step 2: Personal Allowance
For the 2026/27 tax year, the standard Personal Allowance is:
👉 £12,570 tax-free
This means the first £12,570 of your taxable income is usually tax-free.
Example:
Profit: £40,000
Tax-free Personal Allowance: £12,570
👉 Taxable income = £27,430
Please note: your Personal Allowance can be reduced if your income is over £100,000.
📈 Step 3: Income Tax Rates for 2026/27
For England, Wales and Northern Ireland, the main Income Tax rates for 2026/27 are:
🔹 0% Personal Allowance
Up to £12,570
🔹 20% Basic Rate
On taxable income up to £37,700 after your Personal Allowance
🔹 40% Higher Rate
On taxable income from £37,701 to £125,140 after your Personal Allowance
🔹 45% Additional Rate
On taxable income over £125,140
💡 Income Tax Example
Profit: £40,000
You pay:
0% on the first £12,570
20% on the remaining £27,430
Income Tax calculation:
£27,430 × 20% = £5,486
👉 Income Tax due: approximately £5,486
🧾 Step 4: National Insurance for Self-Employed People
National Insurance is very important because it is separate from Income Tax.
For the 2026/27 tax year, self-employed people usually need to consider Class 4 National Insurance.
🔹 Class 2 National Insurance
For 2026/27, if your self-employed profits are £7,105 or more per year, Class 2 National Insurance contributions are treated as paid to protect your National Insurance record.
This means most self-employed people with profits above this level do not need to pay a separate Class 2 amount.
If your profits are below £7,105, you do not have to pay Class 2, but you may choose to pay voluntary Class 2 contributions to help protect your National Insurance record.
The voluntary Class 2 rate for 2026/27 is £3.65 per week.
🔹 Class 4 National Insurance
For 2026/27, Class 4 National Insurance is charged as follows:
6% on profits over £12,570 up to £50,270
2% on profits over £50,270
💡 National Insurance Example
Profit: £40,000
Class 4 National Insurance is calculated on:
£40,000 – £12,570 = £27,430
£27,430 × 6% = £1,645.80
👉 Class 4 National Insurance due: approximately £1,646
💰 Total Tax Example for £40,000 Profit
For £40,000 profit in 2026/27:
Income Tax: approximately £5,486
Class 4 National Insurance: approximately £1,646
👉 Total Income Tax and National Insurance: approximately £7,132
This is an estimate only. Your final tax position may be different depending on your circumstances, other income, allowances, student loan repayments, pension contributions, losses, property income or other adjustments.
⚠️ Payments on Account: Very Important
Many self-employed people are surprised by Payments on Account.
After your first Self Assessment year, HMRC may ask you to make advance payments towards the next year’s tax bill.
Usually, these are split into two payments:
50% due by 31 January
50% due by 31 July
💡 Payments on Account Example
If your Self Assessment bill is approximately £7,132, HMRC may ask for:
£7,132 for the current year
Plus £3,566 as the first Payment on Account towards next year
👉 Total due by 31 January could be approximately £10,698
Then another Payment on Account of approximately £3,566 may be due by 31 July.
This is why planning ahead is very important.
💡 How to Reduce Your Tax Legally
You may be able to reduce your tax bill legally by:
✔ Claiming all allowable business expenses
✔ Keeping accurate records
✔ Using allowances correctly
✔ Planning your income and expenses properly
✔ Getting professional advice before the deadline
Examples of common allowable expenses may include:
✔ Tools and equipment
✔ Work-related mileage
✔ Mobile phone and internet business use
✔ Professional fees
✔ Insurance
✔ Advertising and marketing
✔ Office costs
✔ Software and subscriptions
✔ Training related to your business
The expenses you can claim depend on your business and circumstances.
⚠️ Common Mistakes Self-Employed People Make
❌ Not saving money for tax
❌ Forgetting about National Insurance
❌ Not understanding Payments on Account
❌ Not keeping receipts and records
❌ Claiming expenses incorrectly
❌ Missing the 31 January deadline
❌ Guessing the tax bill instead of calculating it properly
These mistakes can lead to stress, penalties, interest and unexpected tax bills.
💡 How DCTaxAgent Can Help
At DCTaxAgent, we help self-employed individuals, CIS subcontractors, landlords and small business owners with their Self Assessment tax returns.
We can help you:
✔ Calculate your tax correctly
✔ Claim allowable expenses properly
✔ Understand your National Insurance position
✔ Avoid surprises such as Payments on Account
✔ Submit your Self Assessment tax return to HMRC
✔ Stay compliant and organised
👉 So you always know what you owe — and avoid paying more than necessary.
🚀 Conclusion
If you are self-employed, you do not pay tax on all your income.
You normally pay tax on your profit after allowable expenses.
For 2026/27, a self-employed person with £40,000 profit could pay approximately:
Income Tax: £5,486
Class 4 National Insurance: £1,646
👉 Total: approximately £7,132
Planning ahead, keeping good records and getting the right advice can make a big difference.
❓ FAQ: Self-Employed Tax in the UK
Do I pay tax on all my income?
No. You usually pay tax on your profit after deducting allowable business expenses.
What is profit?
Profit is your business income minus allowable business expenses.
When do I pay Self Assessment tax?
The main online Self Assessment filing and payment deadline is usually 31 January after the end of the tax year.
What are Payments on Account?
Payments on Account are advance payments towards your next Self Assessment tax bill. They are usually due on 31 January and 31 July.
Do self-employed people still pay Class 2 National Insurance?
For 2026/27, if your profits are £7,105 or more, Class 2 contributions are usually treated as paid to protect your National Insurance record. If your profits are below £7,105, you may choose to pay voluntary Class 2 contributions.
What is Class 4 National Insurance?
Class 4 National Insurance is paid by self-employed people on profits above £12,570. For 2026/27, the rate is 6% on profits between £12,570 and £50,270, and 2% above £50,270.
How much should I save for tax?
A safe general rule is to save around 20% to 30% of your profit, depending on your income level. If you are a higher earner, have student loan repayments, or need to make Payments on Account, you may need to save more.
Can I reduce my tax legally?
Yes. You can reduce your tax legally by claiming allowable expenses, keeping proper records, using allowances correctly and planning ahead.