How self-employed tax works
As a sole trader you pay tax on your profit — your turnover minus allowable expenses. Two things are charged: Income Tax (using the same bands and £12,570 personal allowance as employees) and Class 4 National Insurance. For 2026/27 Class 4 NI is 6% on profits between £12,570 and £50,270, and 2% above £50,270. Class 2 NI is treated as paid once your profits are above the small-profits threshold, so there is usually nothing extra to pay.
Worked example: £30,000 profit
• Income Tax: 20% of (£30,000 − £12,570) = £3,486
• Class 4 NI: 6% of (£30,000 − £12,570) = £1,046
• Total Self Assessment bill ≈ £4,532
If your bill is over £1,000 you'll usually also make “payments on account” — advance instalments towards next year's tax, due on 31 January and 31 July.
Allowable expenses reduce your profit
You're taxed on profit, not turnover — so legitimate business costs lower your bill. Common allowable expenses for a sole trader include stock and materials, business travel, a proportion of home and phone costs, insurance, accountancy fees and equipment. Keeping good records of these through the year is what makes your Self Assessment both accurate and as low as it should be.
The £1,000 trading allowance
If your self-employed income is very small, the trading allowance lets you earn up to £1,000 a year tax-free without needing to register. Above that you must register for Self Assessment, but you can still choose to deduct the flat £1,000 allowance instead of your actual expenses if that works out better — useful when your real costs are low.
Payments on account
If your Self Assessment bill is more than £1,000, HMRC normally asks you to pay towards next year's tax in advance, in two instalments — one on 31 January (alongside your balancing payment) and one on 31 July. Each is half of your previous year's bill. This catches many people out in their first year, when effectively 18 months of tax can fall due at once, so it's wise to set money aside as you go.
Records, deadlines and Making Tax Digital
The online Self Assessment deadline is 31 January after the tax year ends, and you must keep your records for at least five years after that. A major change is under way: Making Tax Digital for Income Tax is being phased in, starting with sole traders and landlords whose qualifying income is over £50,000 from April 2026, requiring digital record-keeping and quarterly updates. It's worth checking whether — and when — it will apply to you.
Frequently asked questions
How much tax will I pay if I'm self-employed?
On a £30,000 profit for 2026/27 you'd pay roughly £4,532 — £3,486 Income Tax plus £1,046 Class 4 National Insurance.
What is Class 4 National Insurance?
It's the main National Insurance for the self-employed: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270 for 2026/27.
Do I still pay Class 2 National Insurance?
For 2026/27 Class 2 is treated as paid once your profits exceed the small-profits threshold, so there is usually nothing to pay.
What are payments on account?
If your Self Assessment bill is over £1,000, HMRC asks for advance payments towards next year — typically half the bill on 31 January and half on 31 July.
When is the Self Assessment deadline?
Online returns and payment for a tax year are due by 31 January following the end of that tax year.