UK Self-Employed Tax for Beginners: What You Actually Pay in 2026/27

Going self-employed is one of those decisions that feels exciting right up until the first January when you realise you have absolutely no idea what you owe HMRC. Nobody tells you the system clearly upfront — most guides either oversimplify or bury you in forms before explaining the basics.

So let's start from scratch. This is what you actually pay as a UK sole trader in 2026/27, explained from first principles, with no jargon assumed and no unnecessary detours.

The two taxes every sole trader pays

As a sole trader, two main taxes apply to your profits:

Income tax — the same system used by employees, but collected differently
Class 4 National Insurance — a percentage-based levy specifically on self-employment profits

Both are calculated on your net profit: your trading income minus allowable business expenses. Not your gross income — your profit after costs. This distinction matters a great deal, because it means every legitimate business expense you can document reduces the tax you pay.

There is no separate "self-employment tax" in the UK. You're simply using the same income tax infrastructure as everyone else, just paying it yourself rather than having an employer do it via PAYE.

Income tax: how the bands work

The UK income tax system gives every resident a Personal Allowance — the amount of income you can receive completely free of income tax. For 2026/27, that figure is £12,570.

Above the Personal Allowance, tax is charged in three bands:

Band	Profit range (2026/27)	Tax rate
Personal Allowance	£0–£12,570	0%
Basic rate	£12,571–£50,270	20%
Higher rate	£50,271–£125,140	40%
Additional rate	£125,141 and above	45%

So if your net profit for the year is £32,000:

First £12,570 is tax-free
Remaining £19,430 (£32,000 minus £12,570) is taxed at 20%
Income tax = £3,886

The personal allowance taper — a hidden trap for higher earners

One thing worth knowing now, even if it doesn't affect you immediately: if your adjusted net income exceeds £100,000, the Personal Allowance starts to shrink. For every £2 above £100,000, you lose £1 of allowance. By £125,140, the entire allowance is gone.

This creates an effective marginal tax rate of 60% on the £100,000–£125,140 band — higher than the headline additional rate. If you're growing quickly toward that threshold, it's worth planning around. The Income Tax Calculator models this taper automatically.

If you have other income too

If you're also employed part-time, or have rental income, investment income, or anything else, it all feeds into the same income tax calculation. Your self-employed profit sits on top of other income, which can push you into higher bands sooner than your self-employment figures alone would suggest. Always total everything up.

Class 4 National Insurance

Class 4 NIC is the second tax bite on your profits. Unlike Class 1 (what employees pay), Class 4 doesn't build any State Pension entitlement — it's purely revenue for the government. For 2026/27 the rates are:

6% on profits between £12,570 (the Lower Profits Limit) and £50,270 (the Upper Profits Limit)
2% on profits above £50,270

Using our £32,000 example again:

Profits between £12,570 and £32,000 = £19,430 × 6% = £1,166

Combined income tax and Class 4 on £32,000 profit: £3,886 + £1,166 = £5,052 — an effective combined rate of 15.8%.

What about Class 2 NI?

Class 2 NIC — formerly a flat weekly charge that built your State Pension record — was effectively abolished for most self-employed people from 6 April 2024. If your profits are at or above £12,570, Class 2 is treated as paid automatically at no cost, and your State Pension entitlement is protected.

If your profits fall below £6,725 (the Small Profits Threshold), no credits are given automatically. You can choose to pay voluntarily at £3.50/week (£182/year) — a modest sum that adds a qualifying year to your State Pension record, where each year is eventually worth around £329/year in pension income. The Class 2 NI Calculator will confirm your position.

How the totals compare at different profit levels

It's useful to see income tax and Class 4 NIC together across a range of profit levels. The following assumes no other income, the full Personal Allowance, and 2026/27 rates:

Annual profit	Income tax	Class 4 NI	Total tax	Effective rate
£15,000	£486	£146	£632	4.2%
£25,000	£2,486	£746	£3,232	12.9%
£35,000	£4,486	£1,346	£5,832	16.7%
£50,000	£7,486	£2,246	£9,732	19.5%
£60,000	£12,486	£2,446	£14,932	24.9%
£80,000	£20,486	£2,846	£23,332	29.2%

The effective rate starts low because of the Personal Allowance and only climbs meaningfully once you're well into the higher rate band. Most sole traders earning under £50,000 are paying a combined effective rate under 20%.

What counts as an allowable expense?

You pay tax on profit, not turnover. The HMRC rule is that expenses must be incurred "wholly and exclusively" for the purpose of the business. Proportional deductions are allowed for mixed-use items.

Common deductible expenses for sole traders include:

Professional subscriptions and memberships relevant to your trade
Accountancy and bookkeeping fees
Business travel (mileage at HMRC's approved rates, public transport, parking — but not your commute to a regular workplace)
A proportion of home running costs if you work from home — rent or mortgage interest, utilities, broadband, council tax
Office supplies, software subscriptions, and cloud services used for work
Professional indemnity or public liability insurance
Marketing and advertising spend
Business phone and a proportional share of phone bills

You cannot deduct personal expenses, the capital cost of buying equipment outright (though you may claim capital allowances), or anything that has a non-business element you can't cleanly separate.

The mileage deduction deserves a mention specifically. Instead of tracking actual fuel costs, you can use HMRC's Approved Mileage Allowance Payments (AMAP): 45p per mile for the first 10,000 business miles in a year, then 25p above that for cars and vans. The HMRC Mileage Calculator handles this for you.

The Self Assessment cycle

Registering

You must register for Self Assessment if your self-employment income exceeds £1,000 in a tax year. The deadline is 5 October following the end of the first tax year in which you trade. If you started in June 2026 (the 2026/27 tax year), your registration deadline is 5 October 2027.

Register through your Government Gateway account at gov.uk. HMRC will set up your Unique Taxpayer Reference (UTR) and enrol you.

Filing and paying

Once registered, each year you file a Self Assessment tax return:

Online filing deadline: 31 January following the end of the tax year (so 31 January 2028 for 2026/27)
Paper filing deadline: 31 October following the tax year end
Payment deadline: 31 January — the same day as the online deadline

Payments on account — the one that catches everyone out

Here's the piece of the system that surprises almost every first-year sole trader: payments on account.

If your tax bill is £1,000 or more, HMRC requires you to make advance payments toward your next year's bill. Each payment is 50% of the current year's qualifying bill (income tax plus Class 4 NIC only — not CGT, not student loans). They fall due on:

31 January — same day as your current year's balance
31 July — six months later

The first time this kicks in, January feels brutal. You're paying your full current-year bill and 50% of next year's bill on the same day. If your qualifying bill was £6,000, you'd owe £6,000 balancing payment plus £3,000 first payment on account — £9,000 in one go.

This is not a penalty or a mistake. You're simply paying forward. By the following year, you'll have already paid half your bill in January and half in July, and the large January lump sum is a one-time shock. Use the Payment on Account Calculator to see exactly what to expect.

Setting money aside throughout the year

The best defence against a surprise January bill is setting money aside as you earn it. A reliable rule of thumb for most sole traders with profits under £50,000: put 25–30% of each payment you receive into a separate savings account. At the combined income tax plus Class 4 NIC rates in that range, 25–30% is more than enough for most situations, with a small buffer for accountancy fees.

If you're creeping toward the higher rate band (above £50,270 profit), consider increasing that to 35–40% to account for the 40% income tax rate that kicks in above that threshold.

The quick checklist

Register for Self Assessment by 5 October in year one
Keep records of every business income payment and expense throughout the year
Set aside 25–30% of income for tax (more if you approach the £50k mark)
File your return by 31 January online (or 31 October on paper)
Expect payments on account if your bill reaches £1,000
Use the Self Assessment Estimator to estimate your bill before January

Running the numbers now — rather than the week before the deadline — is the single most useful thing you can do. The Class 4 NI Calculator and the Income Tax Calculator together give you a reliable estimate within minutes of knowing your annual profit.