Self-Employed Tax Guide 2025: National Insurance, Income Tax & Expenses
A complete guide to UK self-employment tax — what you owe, deadlines, allowable expenses, and how to keep more of what you earn.
How Tax Works When You Are Self-Employed
When you work for yourself as a sole trader, you are responsible for calculating and paying your own tax and National Insurance through Self Assessment. Unlike employment where your employer handles PAYE, as a self-employed person you must register with HMRC, file an annual tax return, and make payments — sometimes twice a year. Understanding the system upfront saves stress and prevents the shock of a large unexpected tax bill.
Income Tax: Same Bands, Different Process
Self-employed people pay income tax at exactly the same rates as employed workers — the difference is that you pay on your taxable profits (income minus allowable expenses) rather than on your gross salary. The 2025/26 bands apply: 0% on profits up to £12,570 (Personal Allowance), 20% on £12,571–£50,270, 40% on £50,271–£125,140, and 45% above £125,140.
National Insurance for the Self-Employed (2025/26)
| Class | Rate | Threshold | How Paid |
|---|---|---|---|
| Class 2 | £3.45/week (flat rate) | Profits above £12,570 | Via Self Assessment |
| Class 4 | 9% on profits £12,570–£50,270 | Above lower profits limit | Via Self Assessment |
| Class 4 (upper) | 2% on profits above £50,270 | Above upper profits limit | Via Self Assessment |
Class 2 NI is effectively abolished from April 2024 for most self-employed — you continue to get NI credit towards State Pension without paying the flat-rate charge if your profits are above the Small Profits Threshold. Check your current HMRC position if you were paying Class 2 voluntarily.
Self Assessment Deadlines
- 5 October — Register for Self Assessment if you are new to self-employment
- 31 October — Paper tax return deadline
- 31 January — Online tax return deadline AND payment of tax owed for the previous tax year
- 31 July — Second payment on account (if applicable)
Payment on Account Explained
If your self-assessment tax bill exceeds £1,000, HMRC requires you to make advance payments towards next year's bill — called "payments on account." Each payment is 50% of your previous year's bill, made in January and July. In your first year of significant self-employment income this can create a cash flow shock: you pay your first year's tax in January plus 50% towards next year, all at once.
Example: Tax bill of £4,000. January payment: £4,000 (owed) + £2,000 (first payment on account) = £6,000 due. July payment: £2,000 (second payment on account). Total for the tax year: £8,000 across two payments.
Allowable Business Expenses
You can deduct legitimate business expenses from your turnover before calculating your taxable profit. Common allowable expenses include:
- Home office costs — either the flat-rate simplified expenses (£10/month for 25–50 hours/week, £18/month for 51–100 hours, £26/month for over 100 hours) or proportional actual costs
- Mileage for business travel — 45p per mile for the first 10,000 miles, 25p thereafter
- Equipment and tools — laptops, cameras, tools, and professional equipment used for business
- Professional fees — accountant fees, legal advice, trade subscriptions
- Marketing and advertising — website costs, ads, business cards
- Training and CPD — courses directly related to your existing business
- Phone and internet — the business proportion of your bills
The Trading Allowance: £1,000
If your self-employment income is £1,000 or less in a tax year, you do not need to file a Self Assessment return for that income — the trading allowance covers it. If your income exceeds £1,000, you can either deduct actual expenses or simply deduct the £1,000 trading allowance, whichever is more beneficial.
Making Tax Digital (MTD) for Income Tax
From April 2026, self-employed people with income over £50,000 must use MTD-compatible software to keep digital records and submit quarterly updates to HMRC (replacing the annual return). Those with income over £30,000 follow from April 2027. Start using accounting software now to prepare and to ensure your records are organised.
Tips to Reduce Your Self-Employment Tax Bill
- Maximise pension contributions — contributions reduce your net relevant earnings and therefore Class 4 NI as well as income tax
- Claim all legitimate expenses — many sole traders under-claim, particularly on home office, mileage, and professional development
- Set aside 25–30% of every payment you receive in a dedicated tax savings account — never spend tax money before it is due
- Consider incorporation if profits consistently exceed £50,000 — corporation tax (25% on profits above £250,000, 19% small profits rate) can be more efficient, though NI on salary must be weighed against dividend tax
Use our Income Tax Calculator to estimate your self-employment tax →