If you work for yourself in the UK — whether as a sole trader, freelancer, or contractor outside IR35 — you pay income tax on your profits plus Class 4 National Insurance, which employed workers do not pay. Class 2, the other self-employed class, is no longer charged: profits at or above the Small Profits Threshold are treated as paid, and below it you may choose to pay.
How Self-Employment Income Tax Works
Self-employed income tax is calculated the same way as for employees: your trading profits (turnover minus allowable expenses) are added to any other income you have, and tax is applied using the standard bands (20% basic, 40% higher, 45% additional for England/Wales/NI; Scotland has its own six-band structure). You receive the same £12,570 Personal Allowance.
The key difference is collection. Employees have tax deducted at source through PAYE; the self-employed pay through Self Assessment, filing a return by 31 January after the end of the tax year.
Class 2 National Insurance
Mandatory Class 2 payment was abolished from 6 April 2024. Class 2 is what gives you a qualifying year toward the State Pension, Maternity Allowance, and certain other contributory benefits — but for most self-employed people it is now free, not a “charge” you pay:
- Profits at or above the Small Profits Threshold: you get a National Insurance credit automatically — you are treated as having paid Class 2 without actually paying anything.
- Profits below the Small Profits Threshold: Class 2 is not payable automatically, but you can choose to pay it voluntarily at the flat weekly rate to protect your State Pension record.
| Tax Year | Weekly Voluntary Rate | Annual Cost | Small Profits Threshold |
|---|---|---|---|
| 2026/27 | £3.65 | ~£189.80 | £7,105 |
| 2025/26 | £3.50 | ~£182.00 | £6,845 |
| 2024/25 | £3.45 | ~£179.40 | £6,725 |
If your profits are below the Small Profits Threshold (£7,105 for 2026-27), you can choose to pay voluntary Class 2 NI to protect your State Pension record — it is not compulsory.
Class 4 National Insurance
Class 4 NI is a percentage charge on your annual trading profits. Unlike Class 2, it does not provide additional benefit entitlements — it is purely a tax on self-employed earnings.
| Band | Profits Range (2026-27) | Rate |
|---|---|---|
| Main rate | £12,570 – £50,270 | 6% |
| Upper rate | Above £50,270 | 2% |
(Unchanged from 2025-26 — the Lower and Upper Profits Limits are frozen alongside the Income Tax Personal Allowance and NI Upper Earnings Limit.)
Class 4 is collected alongside your income tax through Self Assessment. The thresholds align with the income tax Personal Allowance and the Upper Earnings Limit, simplifying the calculation.
Payments on Account
If your Self Assessment tax bill is £1,000 or more after deducting tax taken at source, and that balance is also at least a fifth of your whole bill (so you are not excused if more than 80% was already deducted at source, for example through PAYE), HMRC requires you to make two payments on account — advance payments toward next year’s bill:
- First payment: 31 January (during the tax year)
- Second payment: 31 July (after the tax year ends)
Each payment on account is 50% of the previous year’s total tax and Class 4 NI liability. A balancing payment is due on 31 January the following year if the actual liability exceeds the payments made.
You can apply to reduce payments on account if you expect lower profits this year, but if you reduce them too far, HMRC charges interest on the underpayment.
Allowable Business Expenses
Self-employed workers can deduct legitimate business expenses before calculating taxable profit. Common deductions include:
- Office costs (stationery, phone, broadband)
- Travel and vehicle costs (mileage at 55p/mile for the first 10,000 miles in 2026-27; 45p/mile for 2025-26)
- Clothing required for work (uniforms, not everyday clothes)
- Professional subscriptions and insurance
- Accountancy and legal fees
- A proportion of home costs if you work from home (simplified expenses or actual cost basis)
Registering with HMRC
You must register as self-employed with HMRC by 5 October following the tax year in which you started trading. Registration is done online and triggers the requirement to file Self Assessment returns. Failure to register on time can result in penalties.
Key Takeaway
Self-employed workers pay income tax and Class 4 NI on their profits, with Class 2 now credited free (or optional below the Small Profits Threshold). Understanding the thresholds and planning for payments on account avoids cash flow surprises. Use our self-employment tax calculator to see your full breakdown.