“How much tax do I actually owe?” is the question every self-employed person asks, and the answer is less obvious than it looks. You don’t pay tax on your turnover. You pay tax on your profit — and the calculation involves two separate charges stacked on top of each other: Income Tax and Class 4 National Insurance.
This guide walks through the full calculation step by step, with worked examples at three income levels. Whether you’re filing your 2025/26 return (due 31 January 2027) or estimating your 2026/27 bill as you earn, the rates and thresholds are the same — they’re frozen until April 2031. Follow along with your own figures.
If you’re not sure whether you’re classified as self-employed in the first place, start with our guide to employment status and self-employed tax — it covers the HMRC tests that determine your status. This article assumes you know you’re self-employed and need to work out the bill.
The Four-Step Formula
Self-employed tax is calculated in four steps:
- Work out your profit — turnover minus expenses (or the £1,000 trading allowance)
- Apply the Personal Allowance — the first £12,570 of total income is tax-free
- Calculate Income Tax — 20% on the next chunk, 40% above £50,270, 45% above £125,140
- Add Class 4 National Insurance — 6% on profits between £12,570 and £50,270, 2% above that
The result is your total tax bill for the year. Let’s break each step down.
Step 1: Work Out Your Profit
You are taxed on profit, not turnover. Profit is your total income from self-employment minus your allowable business expenses.
Profit = Turnover − Allowable ExpensesTurnover is everything you invoiced or received for your trade during the tax year (6 April to 5 April). If you use the cash basis — the default since April 2024 — you count income when you’re paid, not when you send the invoice.
Allowable expenses are costs incurred wholly and exclusively for your trade: equipment, software, travel, phone, a proportion of home running costs if you work from home, professional fees, insurance, and more. Our allowable expenses guide covers every category in detail, and HMRC’s self-employed expenses page is the official reference.
The trading allowance shortcut
Instead of claiming actual expenses, you can deduct a flat £1,000 trading allowance — no receipts needed. You can’t claim both; it’s one or the other.
- If your actual expenses are under £1,000, take the allowance — it’s a bigger deduction and simpler.
- If your actual expenses are over £1,000, claim actual expenses — you get a bigger deduction.
Use our trading allowance vs expenses calculator to see which method saves you more, or read the full guide to the trading allowance decision.
Step 2: Apply the Personal Allowance
Everyone gets a Personal Allowance of £12,570 — the amount you can earn before paying any Income Tax. It’s applied against your total income, not just your self-employed profit. If you have a PAYE job as well, your salary uses up the allowance first.
The Personal Allowance is frozen at £12,570 until April 2031. For the full breakdown of how it works, the £100,000 taper trap, and how to protect it, see our Personal Tax Allowance guide.
Taxable Income = Total Income − £12,570If your total income is below £12,570, you pay no Income Tax. (You may still owe Class 4 NI — see step 4.)
Step 3: Calculate Income Tax
The taxable income (after the Personal Allowance) is split across tax bands. For 2026/27 — and 2025/26, since the thresholds are frozen:
| Band | Taxable income range | Rate |
|---|---|---|
| Personal Allowance | £0 – £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The bands apply to your total income — self-employed profit plus any PAYE salary, rental income, savings interest, or dividends. HMRC’s Income Tax rates page is the official source.
One trap: if your adjusted net income exceeds £100,000, your Personal Allowance tapers away at £1 for every £2 earned. By £125,140, it’s gone entirely — producing an effective 60% tax rate on that band. See our Personal Tax Allowance guide for how to avoid this.
Step 4: Add Class 4 National Insurance
Class 4 NI is the self-employed equivalent of employee National Insurance. It’s charged on your self-employed profit (not total income), and it’s separate from Income Tax.
| Band | Profit range | Rate |
|---|---|---|
| Lower threshold | £0 – £12,570 | 0% |
| Main rate | £12,571 – £50,270 | 6% |
| Upper rate | Over £50,270 | 2% |
Class 2 NI (the old flat-rate weekly contribution) was abolished, so there’s no longer a separate flat charge. The HMRC National Insurance rates and allowances page is the official reference.
Note: Class 4 NI is calculated on your self-employed profit only, while Income Tax is calculated on your total income. If you have a PAYE job, your salary doesn’t attract Class 4 NI — it attracts Class 1 employee NI instead, deducted by your employer.
Worked Example 1: Basic-Rate Sole Trader (£30,000 Profit)
Meet James. He’s a sole trader running a small web development business. For 2026/27:
| Item | Amount |
|---|---|
| Turnover (invoiced income) | £42,000 |
| Allowable expenses | £12,000 |
| Trading profit | £30,000 |
He has no other income. His expenses are well above £1,000, so he claims actual expenses rather than the trading allowance.
Income Tax
| Band | Amount in band | Rate | Tax |
|---|---|---|---|
| £0 – £12,570 (Personal Allowance) | £12,570 | 0% | £0 |
| £12,571 – £50,270 (basic rate) | £17,430 | 20% | £3,486.00 |
| Total Income Tax | £3,486.00 |
Class 4 National Insurance
| Band | Amount in band | Rate | NI |
|---|---|---|---|
| £0 – £12,570 | £12,570 | 0% | £0 |
| £12,571 – £50,270 | £17,430 | 6% | £1,045.80 |
| Total Class 4 NI | £1,045.80 |
Total tax bill
| Component | Amount |
|---|---|
| Income Tax | £3,486.00 |
| Class 4 National Insurance | £1,045.80 |
| Total tax due | £4,531.80 |
James’s effective tax rate is about 15.1% of his profit (£4,531.80 ÷ £30,000). He should set aside roughly 25–30% of every invoice to cover tax and payments on account.
Worked Example 2: Higher-Rate Sole Trader (£65,000 Profit)
Meet Priya. She’s a freelance consultant earning significantly more. For 2026/27:
| Item | Amount |
|---|---|
| Turnover | £95,000 |
| Allowable expenses | £30,000 |
| Trading profit | £65,000 |
No other income. Her profit crosses into the higher rate band.
Income Tax
| Band | Amount in band | Rate | Tax |
|---|---|---|---|
| £0 – £12,570 (Personal Allowance) | £12,570 | 0% | £0 |
| £12,571 – £50,270 (basic rate) | £37,700 | 20% | £7,540.00 |
| £50,271 – £125,140 (higher rate) | £14,730 | 40% | £5,892.00 |
| Total Income Tax | £13,432.00 |
Class 4 National Insurance
| Band | Amount in band | Rate | NI |
|---|---|---|---|
| £0 – £12,570 | £12,570 | 0% | £0 |
| £12,571 – £50,270 | £37,700 | 6% | £2,262.00 |
| Above £50,270 | £14,730 | 2% | £294.60 |
| Total Class 4 NI | £2,556.60 |
Total tax bill
| Component | Amount |
|---|---|
| Income Tax | £13,432.00 |
| Class 4 National Insurance | £2,556.60 |
| Total tax due | £15,988.60 |
Priya’s effective tax rate is about 24.6% of her profit. Notice how crossing the £50,270 threshold into the higher rate band sharply increases the bill — the £14,730 of profit above the threshold is taxed at 40% instead of 20%, adding nearly £3,000 in tax compared to if it had stayed in the basic band.
This is where reducing your tax bill becomes worthwhile — pension contributions, for example, reduce adjusted net income and can pull you back below the higher-rate threshold. See our pension contributions on Self Assessment guide for the mechanics.
Worked Example 3: Employed and Self-Employed (£25,000 PAYE + £20,000 Profit)
This is the scenario the search term “employed and self-employed tax calculator” points at — and it’s where the calculation gets interesting, because the two income sources stack.
Meet Tom. He has a part-time PAYE job earning £25,000/year and a self-employed side business with £20,000 profit. For 2026/27:
| Item | Amount |
|---|---|
| PAYE salary (gross) | £25,000 |
| Self-employed turnover | £28,000 |
| Allowable expenses | £8,000 |
| Self-employed profit | £20,000 |
| Total income | £45,000 |
Step 1: Total income for Income Tax
Income Tax is calculated on total income — PAYE salary plus self-employed profit:
Total income = £25,000 + £20,000 = £45,000Step 2: Apply the Personal Allowance
The £12,570 Personal Allowance is applied to total income. In practice, Tom’s PAYE tax code already applied the allowance to his salary during the year, so his employer deducted tax on £12,430 (£25,000 − £12,570). On his Self Assessment, the allowance is recalculated against total income:
| Amount | |
|---|---|
| Total income | £45,000 |
| Minus Personal Allowance | £12,570 |
| Taxable income | £32,430 |
All £32,430 falls within the basic rate band (up to £50,270), so it’s taxed at 20%.
Income Tax
| Band | Amount in band | Rate | Tax |
|---|---|---|---|
| Personal Allowance | £12,570 | 0% | £0 |
| Basic rate | £32,430 | 20% | £6,486.00 |
| Total Income Tax | £6,486.00 |
Tom’s employer already deducted tax from his PAYE salary through the year — approximately £2,486 (£12,430 × 20%). So his Self Assessment balancing payment covers the additional tax on his self-employed profit:
| Amount | |
|---|---|
| Total Income Tax due | £6,486.00 |
| Tax already paid via PAYE | £2,486.00 |
| Income Tax to pay via Self Assessment | £4,000.00 |
Class 4 National Insurance
Class 4 NI is charged on self-employed profit only — not on the PAYE salary. The PAYE salary already attracted Class 1 employee NI (8% on earnings between £12,570 and £50,270), deducted by the employer.
| Band | Amount in band | Rate | NI |
|---|---|---|---|
| £0 – £12,570 | £12,570 | 0% | £0 |
| £12,571 – £50,270 | £7,430 | 6% | £445.80 |
| Total Class 4 NI | £445.80 |
Total Self Assessment bill
| Component | Amount |
|---|---|
| Income Tax (self-employed portion) | £4,000.00 |
| Class 4 National Insurance | £445.80 |
| Total due via Self Assessment | £4,445.80 |
The key insight: Tom’s PAYE salary used up most of his Personal Allowance, so his self-employed profit is taxed almost entirely at 20% from the first pound. If he had only the £20,000 self-employed income and no PAYE job, his tax bill would be much lower — £1,486 Income Tax plus £445.80 NI = £1,931.80 — because the full Personal Allowance would apply to his self-employed profit. The PAYE income pushes his self-employed earnings into the taxable band.
This is why having both employed and self-employed income often results in a higher tax bill than people expect. The PAYE tax code doesn’t account for the self-employed income, so the balancing payment through Self Assessment can be a surprise. Our Self Assessment tax return example walks through how this appears on the actual SA100 and SA102 forms.
What About Payments on Account?
If your tax bill is over £1,000 and less than 80% of your tax was collected at source (e.g. through PAYE), HMRC requires payments on account — two advance payments toward next year’s tax, each equal to 50% of this year’s bill.
This means your first January payment is 150% of your bill: this year’s tax plus the first instalment toward next year. The second instalment is due 31 July. It’s not an extra charge — it’s an advance — but it catches most new self-employed people off guard. Plan for it by setting aside 25–30% of every invoice, not just the headline tax rate.
What About Scottish or Welsh Income Tax?
If you live in Scotland, Income Tax rates and bands are set by the Scottish Government and differ from the rest of the UK. The Scottish Income Tax bands have more bands (Starter, Basic, Intermediate, Higher, Advanced, Top) with different thresholds. Class 4 NI is the same across the UK — it’s not devolved.
If you live in Wales, Welsh Income Tax rates are currently set at the same levels as the rest of the UK, but the Welsh Government has the power to vary them. Check HMRC’s Income Tax rates page for the current Welsh rates.
The calculation method is the same — apply the Personal Allowance, then tax the remainder across the bands. Only the band thresholds and rates differ.
What About Limited Company Directors?
If you trade through a limited company, the calculation is fundamentally different. The company pays Corporation Tax (19% on profits up to £50,000, rising to 25% above £250,000) on its profits, and you pay personal Income Tax and dividend tax only on what you extract as salary and dividends. There’s no Class 4 NI — instead, you pay Class 1 employee NI on your salary.
The limited company route can be more tax-efficient at higher profits, especially if you can leave money in the company, but it carries more admin and filing requirements. For the full comparison — including take-home pay at different profit levels, the break-even analysis, and how to incorporate — see our sole trader or limited company guide.
The Bottom Line
- You’re taxed on profit, not turnover. Profit is turnover minus allowable expenses (or the £1,000 trading allowance if that’s better for you).
- The calculation is two charges stacked: Income Tax + Class 4 NI. Income Tax applies to total income; Class 4 NI applies to self-employed profit only.
- The Personal Allowance is £12,570. It’s applied to total income first, so if you have a PAYE job, your salary uses it up and your self-employed profit is taxed on top.
- Income Tax bands: 20% to £50,270, 40% to £125,140, 45% above. Crossing the £50,270 threshold into higher rate sharply increases your bill.
- Class 4 NI: 6% on profits between £12,570 and £50,270, 2% above. This is on top of Income Tax, not instead of it.
- Employed and self-employed income stacks. Your PAYE salary and self-employed profit are added together for Income Tax, which often pushes the self-employed portion into a higher band than expected.
- Payments on account inflate your first January by 50%. Set aside 25–30% of every invoice, not just the headline rate.
- The rates are frozen until 2031. The 2025/26 and 2026/27 calculations are identical — the thresholds haven’t moved.
If you want to see how these figures appear on the actual tax return forms, our Self Assessment tax return example walks through a filled-in SA100 and SA103S box by box. If you’re looking to reduce the bill rather than just calculate it, our reduce your Self Assessment tax bill hub covers nine legitimate levers. And if you’re new to self-employment and need to get registered and organised, start with our first-year self-employed checklist.