How is self-employed tax calculated in the UK?

You pay income tax on your profit (turnover minus allowable expenses) after the personal allowance, plus Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above. Class 2 NI is treated as paid once profits exceed £6,725. Pension contributions reduce income tax but not Class 4 NI.

What is the trading allowance?

The first £1,000 of trading income is tax-free. You can claim the £1,000 trading allowance instead of your actual expenses if that leaves you better off.

United Kingdom · 2026/27 · sole traders

UK Self-Employed Tax Calculator

Q: What are payments on account?

If your income tax and Class 4 NI bill is £1,000 or more, HMRC asks for two advance payments towards next year's bill — each 50% of this year's liability — due on 31 January and 31 July.

A detailed sole-trader calculator — income tax (with Scottish bands), Class 4 and Class 2 National Insurance, the £1,000 trading allowance, pension relief and student loans — plus the payments on account HMRC will ask for.

Your business

Where do you live?

Turnover / total income

Use the £1,000 trading allowance instead of expenses

Allowable business expenses

Equipment / capital allowances Often 100% deductible (Annual Investment Allowance)

Taxable profit£0

Pension contribution (per year) Reduces income tax, not Class 4 NI

More factors

Other taxable income e.g. a separate salary — sets your tax band (its own NI not included)

Student loan plan

Also repaying a Postgraduate Loan (6%)

Tax & National Insurance due

—

on — profit · keep —

Kept – Income tax – NI – Student loan –

Taxable profit£0

Income tax£0

Class 4 NI£0

Class 2 NI (voluntary)£0

Student loan£0

After-tax profit£0

Payments on account — because your income tax + Class 4 NI is £1,000 or more, HMRC asks for advance payments toward next year.

31 January (balancing + 1st payment on account)£0

31 July (2nd payment on account)£0

Income tax

£0

National Insurance

£0

Effective rate

After-tax profit

£0

How sole-trader tax works

You're taxed on your profit — turnover minus allowable expenses (and capital allowances on equipment). On that profit you pay income tax after your personal allowance, plus Class 4 National Insurance at 6% between £12,570 and £50,270 and 2% above. Class 2 NI no longer needs to be paid once profits exceed £6,725 — you still get the National Insurance credit toward your State Pension.

Scotland, pensions and the trading allowance

Scottish residents pay Scottish income tax rates on their profit (but UK-wide Class 4 NI). Pension contributions get income-tax relief but don't reduce Class 4 NI. If your costs are under £1,000, claiming the £1,000 trading allowance instead of actual expenses can leave you better off.

Payments on account

If your income tax and Class 4 NI come to £1,000 or more, HMRC asks for two advance payments toward next year — each 50% of this year's bill — due on 31 January (alongside the balancing payment for the year just ended) and 31 July. This is why a first Self Assessment bill can feel unexpectedly large.

Frequently asked questions

How is self-employed tax calculated?

Income tax on profit after the personal allowance, plus Class 4 NI (6% then 2%). Class 2 is treated as paid above £6,725 of profit. Pension contributions reduce income tax but not Class 4 NI.

What are payments on account?

Advance payments toward next year's bill — each 50% of this year's income tax + Class 4 NI — due 31 January and 31 July, when your bill is £1,000 or more.

Should I use the trading allowance?

If your actual expenses are below £1,000, the £1,000 trading allowance gives a bigger deduction. You can't use both.

Do I pay NI on my pension contributions?

Pension contributions reduce the income tax on your profit but not Class 4 NI, which is charged on the profit itself.

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Educational estimate — not tax advice. UK 2026/27 sole trader: income tax after £12,570 allowance (with £100k taper; rest-of-UK 20/40/45 and Scottish 19/20/21/42/45/48 bands), Class 4 NI 6%/2%, Class 2 treated as paid above £6,725 (voluntary £182/yr below), student loans 9% (6% postgraduate). Uses annual thresholds; doesn't model overlap/basis-period adjustments, Class 1 NI on separate employment, or CGT. Confirm with HMRC and an accountant.