How tax works when you are self-employed in 2026/27
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As a sole trader you pay tax on your profit, which is your income minus your allowable expenses. Nobody takes it off for you. You report it on a Self Assessment tax return and pay HMRC yourself.
What you pay
- Income tax, at the same rates as an employee: nothing on the first £12,570, 20% up to £50,270, 40% up to £125,140 and 45% above that.
- Class 4 National Insurance: 6% on profits over £12,570 up to £50,270, and 2% above that.
- Class 2 National Insurance: you no longer have to pay it. It is treated as paid, which protects your National Insurance record. If your profits are under £7,105 you can choose to pay it, at £3.65 a week.
- Student loan: 9% of your income for the whole year over your plan's yearly threshold, or 6% for a Postgraduate Loan. It is added to your Self Assessment bill.
The trading allowance
You can take a flat £1,000 off your income, in place of your actual expenses. You cannot have both, so it only helps if your expenses are under £1,000. If your self-employed income for the year is £1,000 or less, you usually do not need to tell HMRC about it at all.
If you also have a job
Your salary is taxed first, through PAYE. It uses up your personal allowance and the lower tax bands. Your profit sits on top, so it is taxed at whatever rate you have already reached. Class 4 is different: it looks at your profit on its own.
Payments on account
HMRC asks most self-employed people to pay towards next year's bill in advance. There are two payments, each half of this year's income tax and Class 4, due by 31 January and 31 July. Student loan is not included. You do not make them if your bill was under £1,000, or if more than 80% of the tax you owed was already collected, for example through your pay.
The first time they apply, the January payment is your whole bill plus half as much again.
Worked examples
A sole trader with £30,000 profit
Income tax is £3,486 and Class 4 is £1,046, a bill of £4,532. That leaves £25,468, and means putting by about £378 a month. Payments on account apply, so £6,798 is due by 31 January 2028 and £2,266 by 31 July 2028.
A £25,000 job plus £10,000 of side income
The salary has used the whole personal allowance, so all £10,000 is taxed at 20%: £2,000. There is no Class 4, because the profit is under £12,570. Only 55.4% of the year's tax came through pay, so payments on account of £1,000 apply and £3,000 is due by 31 January 2028.
Using the trading allowance
You have a £30,000 job and earn £3,500 from occasional work, with £200 of expenses. Claiming the expenses gives a profit of £3,300 and £660 of tax. Using the allowance gives a profit of £2,500 and £500 of tax.
Common questions
What are the deadlines for 2026/27?
Tell HMRC by 5 October 2027 if you need to send a return and have not sent one before. A paper return is due by 31 October 2027. An online return, and the payment, are due by 31 January 2028.
What counts as an allowable expense?
Costs you have only because of the business. That includes office costs such as phone bills, travel for work, stock, insurance and bank charges, the running costs of business premises, advertising, and training related to your business. Money you take out for yourself does not count.
Do I need to use Making Tax Digital for Income Tax?
It depends on your qualifying income, which is your self-employment and property income before expenses. It applies from 6 April 2026 if that was over £50,000 in 2024/25, from 6 April 2027 if it was over £30,000 in 2025/26, and from 6 April 2028 if it is over £20,000 in 2026/27.
Is this different in Scotland?
Yes. Scotland has its own income tax bands. Class 4 and student loan rules are the same. This calculator does not cover Scottish rates.
Where these figures come from
See gov.uk for self-employed National Insurance rates, the trading allowance, payments on account, Self Assessment deadlines, allowable expenses, student loan repayments and Making Tax Digital for Income Tax.