Self-Employed Tax in the UK: Income Tax, NI & Expenses

When you are self-employed, you pay income tax on your business profits (not your total turnover) through the self assessment system. Your profits are calculated as your total business income minus allowable business expenses. You are also required to pay National Insurance contributions, which fund your entitlement to certain state benefits including the state pension. Both income tax and National Insurance are calculated and paid through your annual self assessment tax return.

The personal allowance for 2025/26 is £12,570, meaning you do not pay income tax on the first £12,570 of your total taxable income. The basic rate of 20% applies to taxable income from £12,571 to £50,270. The higher rate of 40% applies from £50,271 to £125,140. The additional rate of 45% applies to income above £125,140. If your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 of income above this threshold, and it disappears entirely at £125,140.

Self-employed individuals pay two types of National Insurance. Class 2 NI is a flat rate of £3.45 per week (£179.40 per year) and is payable if your profits exceed the small profits threshold of £6,725. Class 4 NI is charged at 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Both are calculated and paid through your self assessment tax return. These contributions count towards your state pension entitlement and other state benefits.

In addition to the £12,570 personal allowance, self-employed people can benefit from the £1,000 trading allowance. If your trading income is under £1,000, you may not need to report it. However, if you are serious about building a real business, we recommend registering a UK Limited Company through TaxRoot for just £100. A limited company gives you credibility, tax efficiency through salary and dividend planning, and separates your personal assets from business liability. You can also benefit from the savings allowance (£1,000 for basic rate taxpayers, £500 for higher rate) and the dividend allowance (£500 for 2025/26) on any investment income you receive.

If your self assessment tax bill is more than £1,000 and less than 80% of your tax was deducted at source, HMRC will require you to make payments on account. These are advance payments towards your next year's tax bill, each equal to 50% of your previous year's liability. The first payment is due on 31 January (during the tax year) and the second on 31 July (after the tax year ends). Any remaining balance is paid with your final tax bill the following 31 January.

• Office supplies, stationery, and postage
• Business phone calls, broadband, and mobile contracts (business proportion)
• Vehicle expenses including fuel, insurance, and repairs (business mileage)
• Travel costs for business journeys including trains, buses, and parking
• Accountancy and legal fees related to your business
• Business insurance premiums
• Marketing, advertising, and website costs
• Use of home as office (simplified expenses or actual costs)

If you work from home, you can use HMRC's simplified expenses flat rate instead of calculating the actual proportion of household costs. The flat rates are £10 per month for 25 to 50 hours of business use, £18 per month for 51 to 100 hours, and £26 per month for 101 hours or more. Alternatively, you can calculate the actual proportion of your household costs (rent, utilities, broadband, council tax) attributable to business use, which may give a higher deduction but requires more detailed records.