How Self-Employed Tax Works in the UK

If you're self-employed — running a business as a sole trader, freelancing, or earning casual income above £1,000 a year — you're responsible for working out and paying your own Income Tax and National Insurance through HMRC's Self-Assessment system. That's a contrast to PAYE, where your employer deducts tax automatically; with self-employment the money lands in your account untaxed and you have to set some aside.

What counts as profit

You're taxed on your profit, not on gross turnover. Profit is your trading income minus "allowable expenses" — costs incurred wholly and exclusively for the business. Common categories: office costs, travel, professional fees, stock and materials, marketing, use of home as an office, and bank charges. HMRC publishes the full list at gov.uk/expenses-if-youre-self-employed. The figure to enter into this calculator is profit after expenses, not gross income.

Trading allowance

If your gross self-employment income for the year is £1,000 or less, the trading allowance gives you a complete tax-free pass — you don't need to register or file. Above £1,000 you can either deduct your actual expenses (standard) or claim the £1,000 allowance against gross income instead, whichever leaves you better off. This calculator's toggle handles only the full-exemption case below £1,000.

Class 2 NI is gone — Class 4 isn't

From 6 April 2024 the £3.50/week Class 2 NI was abolished. You still pay Class 4 NI on profits over £12,570 — at 6% up to £50,270 and 2% above — and that's collected through your Self-Assessment bill alongside Income Tax. Voluntary Class 2 contributions at £3.50/week are still possible if your profit is below £6,845, to keep building your State Pension entitlement.

Payments on account

If your bill exceeds £1,000, HMRC asks for advance instalments toward next year's tax — half on 31 January (alongside the balancing payment for the year just ended), half on 31 July. So in your first year of self-employment you can owe 150% of the year's bill in one January hit. A worked example: profit of £45,000 in 2026/27 with no other income produces around £8,431 of tax + Class 4 NI. On 31 January 2028 you'd owe £8,431 (balancing payment) plus £4,215.50 (first POA for 2027/28), then another £4,215.50 on 31 July 2028.