Self-Employed Tax: How Much Will You Pay in the UK?

"The hardest thing in the world to understand is the income tax." – Albert Einstein

If you're newly self-employed, this quote might feel painfully accurate. It’s one thing to run your business. It’s another to navigate HMRC’s rules, thresholds, deadlines, and acronyms. Let’s make it easier.

In this guide, I’ll walk you through how self-employed tax works in the UK. Whether you’re a sole trader pastry chef like Juliette who spends £12,000 on flour each year, or a freelance designer running your business from your kitchen table — understanding what you owe (and when) can save you both money and stress.

Let’s dive in.

What expenses can I claim as a self-employed person?

One of the perks of being self-employed? You can claim back a surprising amount of what you spend to run your business. But, and here’s the catch, only if it’s genuinely for business purposes.

Let’s break it down with real examples and simple explanations.

What are allowable business expenses?

Think of allowable expenses as costs that are "wholly and exclusively" for business. That’s HMRC's wording — but in practice, it means anything you spend money on to earn money. If you spend money partly for personal use, only the business portion can be claimed.

Here’s a list of common allowable expenses:

• Office supplies (pens, paper, printer ink — the whole WHSmith aisle)

• Software subscriptions (like Adobe, Canva, Xero, etc.)

• Phone bills — if used for business calls

• Travel to meet clients or attend work events

• Vehicle expenses (more on that shortly)

• Business insurance

• Advertising and website costs

• Professional fees (accountants, consultants, legal advice)

Example:

My friend Sam runs a mobile dog grooming business. She bought a van and fitted it with a dog wash station. She claims the van lease, fuel, dog shampoo, and even her branded polo shirts — all of which are 100% for business use.

But the pub lunch after work? That stays firmly in the personal column.

Can I claim home office costs?

Yes — and it’s common. If you work from home, full-time or even just a few hours a week, you can claim a portion of your household bills. You’ve got two options:

1. Simplified expenses (flat rate method) – if you work from home more than 25 hours a month, HMRC lets you claim a flat rate based on hours worked:

Hours/month Flat rate per month

    25–50  -      £10

    51–100 -  £18

    101+     -  £26

It’s easy. No calculations. Just a simple, approved figure.

2. Actual cost method – based on the percentage of your home used for business.

The flat rate is easier, but the actual cost method could get you more back. You’ll need to:

• Work out the total cost of your bills (e.g. electricity, broadband, rent)

• Calculate the percentage of your home used for business (typically one room out of five, for example)

• Estimate the time spent working in that space

Example:

Emma works from her spare room five days a week. She calculates that 20% of her total household bills go towards running her business — so she claims that amount as an expense.

Choose what suits your record-keeping habits.

What records should I keep for expenses?

This part’s simple — but essential. You must keep:

• Receipts (paper or digital)

• Invoices

• Bank statements

• Details of any mileage or business journeys

Good records = lower stress at tax time. They also help protect you if HMRC ever asks questions. You don’t need to send these to HMRC, but you must keep them for at least 5 years after the 31 January deadline of the tax year they relate to.

Quick tip

Create two bank accounts: one for business, one for personal. That way, you won’t accidentally buy Nando’s with your “business” card and try to claim it as networking.

Trust me, separating your money from the start makes everything clearer.

How do I calculate my self-employed tax bill?

What is taxable profit?

Your taxable profit = Income – Allowable expenses

Let’s say you earned £40,000 from freelancing. You spent £5,000 on your laptop, software, subscriptions, and travel. That means your taxable profit is £35,000.

You’re only taxed on the profit — not the full £40,000.

Should I use the cash basis or accrual basis?

You’ve got two options for how to report income and expenses:

• Cash basis – Report income when received and expenses when paid.

• Accrual basis – Report income when earned and expenses when incurred.

Most small businesses use the cash basis — it’s simpler, more intuitive, and helps with cash flow.

What tools can help me calculate my tax?

There are plenty:

• HMRC’s own online calculator

• Cloud accounting software like QuickBooks, FreeAgent, or Xero

• A spreadsheet (if you're confident with formulas)

Many tools also estimate your tax as you go, which is a huge help for budgeting.

What is the self-employed tax rate in the UK?

Income tax bands and rates

For 2025/26, here’s what you’ll pay:

Band Income Rate

Personal allowance Up to £12,570 = 0%

Basic rate £12,571–£50,270 = 20%

Higher rate £50,271–£125,140 = 40%

Additional rate £125,141+ = 45%

Once your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 you earn above that.

National Insurance rates for the self-employed

You’ll also pay National Insurance (NICs):

• Class 2 NICs – £3.45/week if you earn more than £6,725/year

• Class 4 NICs:

o 6% on profits from £12,570 to £50,270

o 2% on profits over £50,270

These NICs go toward your state pension and other benefits. They're just as important as income tax.

How tax bands affect your overall bill

Let’s say your taxable profit is £30,000:

• First £12,570: tax-free

• Next £17,430: taxed at 20% → £3,486

Then Class 4 NI kicks in:

• 6% on £17,430 = £1,045.80

Your total tax bill would be around £4,531.80, not counting Class 2 (£179.40 for the year). That’s over £4.7k to budget for — not small change!

Do I need an accountant if I’m self-employed?

Many self-employed people wonder: “Can I handle my taxes on my own, or should I hire an accountant?” The short answer is — it depends on your situation. But don’t underestimate the value of professional help. Sometimes, it can save you far more money and stress than the cost of hiring one.

When is hiring an accountant worth it?

If you’re just starting out, with straightforward finances, you might feel confident doing your own tax return. But once your business grows, or your tax affairs become more complex, it’s worth thinking about bringing in a professional.

An accountant isn’t required — but here are some situations where hiring an accountant pays off:

• You’re earning above £50,000

• You have multiple income streams (e.g., self-employed plus rental income)

• You’re unsure about deductions or filing correctly

• You want to optimise your tax bill legally

• You’re considering setting up a limited company

• You want to avoid costly mistakes and penalties

I’ve seen clients who saved thousands simply by claiming expenses they didn’t even know they were eligible for — all because an accountant spotted them during a review.

Can I manage my own accounts with software?

Absolutely. Thanks to technology, it’s easier than ever to handle your own bookkeeping and tax returns. Tools like QuickBooks, Xero, and FreeAgent are fantastic and can take much of the headache out of record-keeping.

But remember: software is a tool — not a substitute for expert advice.

You might be able to enter your figures, but knowing which expenses count, how to maximise allowances, and how to plan your tax payments? That’s where human expertise shines.

What services do accountants provide?

Beyond just filing your tax return, a good accountant can:

• Offer tailored tax planning advice

• Help you understand and meet HMRC deadlines

• Prepare your accounts and VAT returns

• Represent you if HMRC raises questions

• Assist with business growth planning and cash flow

• Advise on pensions, dividends, and incorporation

It’s like having a tax bodyguard. One that knows Excel better than you ever will. The peace of mind knowing your taxes are right, and your affairs are compliant — that’s priceless.

Here’s the truth: managing your tax return might feel doable now. But as your business grows, tax rules get more complicated, and mistakes can become costly.

If you want to focus on your work and leave the tax worries to someone who really knows their stuff, reach out to us. We’re here to help you navigate the complexities with confidence — so you can get back to what you do best.

Ready to explore how an accountant can make your self-employment journey smoother? Just get in touch. We’ll talk through your unique situation and tailor the right support for you.

In Summary

So, how much tax will you pay when self-employed?

It depends. It depends on your income, your expenses, and whether you're making smart decisions with your record-keeping and timing. But now you know what to look for — and where to begin.

Here’s what you should do next:

• Track your income and expenses from day one

• Use tools or hire help to stay compliant

• Budget for tax (20–30% of profits is a good rule of thumb)

• And don’t leave it until January!

Self-employment can be incredibly rewarding — but only if you stay in control of your numbers.

How do I calculate my self-employed tax bill?

Right — so now you’ve earned your income, claimed your expenses, and maybe even made sense of what counts as allowable. But here comes the real question: how much do you owe HMRC?

It’s not as simple as just subtracting expenses from income and calling it a day. In fact, it’s where most self-employed people start to second-guess themselves — and where a good accountant can save you more than just money.

What is taxable profit?

Your taxable profit is what you earn after deducting allowable business expenses from your total income. That’s the figure HMRC uses to calculate your tax and National Insurance.

Let’s say you brought in £30,000 last year and had £8,000 in allowable expenses — your taxable profit would be £22,000.

But what if you bought a laptop partly for business and partly for Netflix? Or drove your car to meet a client and then swung by the supermarket? That’s where things get grey. And grey is where HMRC likes to poke around.

If you’re unsure about what's claimable, that’s your first sign to speak with a professional.

Should I use the cash basis or accrual basis?

This is one of those decisions that seems small but can make a big impact.

• Cash basis means you only record income when it’s actually received and expenses when they’re paid.

• Accrual basis (also called traditional accounting) means you record income and expenses when they’re invoiced, not when money changes hands.

If your turnover is under £150,000, you can usually choose either method. But which one works best for your business depends on how you operate, how often you get paid, and what your cash flow looks like.

Some businesses benefit hugely from one method over the other — and most don’t realise it until it’s too late.

This is exactly the sort of decision we help our clients get right. Because while you’re busy running your business, we’re here to make sure you’re not paying more tax than you need to.

What tools can help me calculate my tax?

There are plenty of online calculators. Some even give you a ballpark figure — but they’re just that. Ballpark.

You can also use accounting software like FreeAgent, QuickBooks, or Xero. These can automate parts of the process, generate reports, and help you track your tax liability through the year.

But here’s the truth: even the best software is only as accurate as the data you enter.

That’s where our accounting practice comes in.

We work with self-employed professionals every day — freelancers, tradespeople, consultants, creatives — and we’ve seen just how different every business is. There’s no one-size-fits-all approach. That’s why we tailor our advice, spot savings you might miss, and keep you on the right side of HMRC.

So if you’re tired of second-guessing your tax bill or want the peace of mind of knowing it’s done right, let’s talk. A quick call could save you hours — and possibly thousands.

What is the self-employed tax rate in the UK?

When people ask, “How much tax will I pay?” what they often mean is, “What percentage of my income will I lose?” And the honest answer is — it depends. On how much you earn, what your expenses look like, and which tax bands you fall into.

Understanding the rates isn’t just useful. It’s essential. Because when you know how the system works, you can plan ahead, avoid nasty surprises, and even make smarter decisions about how and when to draw income.

Income tax bands and rates

In the 2025/26 tax year, the personal allowance — the amount you can earn before paying any income tax — is £12,570.

Once you cross that, here’s how income tax applies:

• Basic rate (20%): For profits between £12,571 and £50,270

• Higher rate (40%): For profits between £50,271 and £125,140

• Additional rate (45%): For profits over £125,140

Here’s a simple example:

If your taxable profit is £30,000, you pay 20% on everything over £12,570 — which is £17,430. That comes out to £3,486 in income tax.

If your profit is £60,000, you’ll pay:

• 20% on the first £37,700 above the allowance

• 40% on the remaining £9,730

That’s when the numbers really start to climb.

But remember — tax doesn’t apply to your entire income at once. It’s tiered. Each band applies only to the portion of income that falls within it.

National Insurance rates for the self-employed

On top of income tax, self-employed people pay Class 2 and Class 4 National Insurance Contributions (NICs).

• Class 2 NICs: £3.70 a week if your profits are over £6,725

• Class 4 NICs:

o 9% on profits between £12,570 and £50,270

o 2% on profits over £50,270

Here’s how it might look in practice:

If you earned £40,000 profit:

• Class 2: £3.70 x 52 = £192.40

• Class 4: 9% of £27,430 = £2,468.70

• Total NI = £2,661.10

Add that to your income tax, and you can see how the tax bill starts to add up.

How tax bands affect your overall bill

One mistake we often see is people underestimating the impact of crossing into a new tax band. The jump from 20% to 40% doesn’t just mean paying double on that extra income — it can tip the balance on your overall financial plan.

We had a client recently — a self-employed marketing consultant earning just under £50,000. She was about to take on a big contract that would push her income past the higher rate threshold. After a consultation, we advised her to set up a limited company, split her income strategically, and defer some billing. Result? She avoided the 40% rate entirely — all perfectly above board.

That’s the kind of tailored strategy you just don’t get from a Google search.

The takeaway?

Understanding tax bands is one thing. Knowing how to work within them to minimise your liability — that’s where expert help makes a difference.

If your income is nearing a new band, or you just want clarity on what you really owe, get in touch with our team. We’ll help you understand your numbers and keep more of what you earn — legally, ethically, and with peace of mind.

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