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Working for yourself comes with many rewards, but understanding your tax obligations is also paramount. Unlike employees who have tax deducted automatically through PAYE, self-employed individuals in the UK manage their income tax via Self Assessment. This comprehensive guide will walk you through everything you need to know for the 2025-2026 tax year, including the current self-employed income tax rates and available allowances.
What Is Self Employed Income Tax?
If you work for yourself as a sole trader or in a partnership, you pay income tax on your profits through a system called Self Assessment. If you are a company director, you will also pay income tax on your salary and any dividends you receive through Self Assessment.
This is different from people who work for an employer. They have income tax and National Insurance contributions (NICs) automatically taken from their wages before they get paid. This system is called Pay As You Earn (PAYE).
The UK government collects income tax on various types of income, such as:
- Money you earn from a job
- Profits from being self-employed
- Income from dividends (shares)
- Interest earned on savings
- Money from renting out property
- Pension income
How Much Tax is on Self-employed Income?
The amount of income tax you owe depends on a few things:
- Your total taxable income: This is all the money you earn that is subject to tax.
- Your Personal Allowance: This is a set amount of income you don’t have to pay tax on each year.
- Income tax bands: These are different levels of income that are taxed at different rates.
If you have income from both a job and from being self-employed, all your income is added together to work out how much income tax you owe. While tax on your job income is usually sorted out through PAYE, you’ll need to declare any extra income from your self-employment (after taking off allowable business costs) through Self Assessment. This makes sure all your taxable income is accounted for.
When we talk about tax on self-employed income, we are specifically looking at the tax on your trading profits. These are the earnings you make from your business after the deduction of any allowable business expenses. Your total income, including these profits, will then be used to decide which income tax band you fall into and how much tax you need to pay.
HMRC has a helpful online tool called the “Self-employed ready reckoner“. This can give you an estimate of your income tax and National Insurance. There are separate versions for people in Scotland and for those in England, Wales, and Northern Ireland. However, remember that these tools work best for simpler tax situations.
If your tax situation is more complicated, for example if you owe tax from previous years or have income from many different sources, it might be better to calculate your tax manually or get advice from a tax professional. They can help you make sure you are paying the right amount.
Besides income tax and National Insurance, if you are self-employed, you also pay tax on:
- Dividends: If you receive income from shares in a company, you pay tax on this. There’s a specific amount of dividend income you can earn tax-free each year.
- Capital Gains: If you make a profit from selling certain assets, like property or shares, you pay Capital Gains Tax.
Current Self-Employed Income Tax Rates
The current UK tax year runs from 6 April 2025 to 5 April 2026. As a self-employed individual, you will not pay income tax on your profits up to a certain threshold known as the Personal Allowance. For the 2025-2026 tax year, the standard Personal Allowance is £12,570.
The current Self-Employed income tax rates for the 2025-2026 UK tax year are:
| Tax Band | Taxable Income | Tax Rate |
|---|---|---|
|
Personal Allowance |
Up to £12,570 |
0% |
|
Basic Rate |
£12,571 to £50,270 |
20% |
|
Higher Rate |
£50,271 to £125,140 |
40% |
|
Additional Rate |
Over £125,140 |
45% |
Note: The standard Personal Allowance has remained at £12,570 since the 2021-2022 tax year and is currently set to stay at this level until at least April 2028. This stability provides a degree of certainty for financial planning.
How the Personal Allowance Works for the Self-Employed
When you complete your Self Assessment tax return, you declare your total income and any allowable business expenses. Your taxable profit is then calculated (income minus expenses). The Personal Allowance is automatically deducted from this taxable profit before income tax is calculated.
The standard Personal Allowance can be reduced if your total income is over £100,000. For every £2 of income above this threshold, your Personal Allowance is reduced by £1.
While the standard Personal Allowance is the most common, some people may be eligible for other allowances that could affect their overall tax liability. These include allowances for blind persons or married couples (under certain conditions). However, the core principle of the Personal Allowance as the initial tax-free amount remains the same.
Other Income Tax Allowances for the Self-Employed
Besides the standard Personal Allowance, self-employed individuals in the UK might be able to claim the following allowances, which can help reduce their tax bill:
1. Trading Allowance:
- This allowance is designed to simplify tax for individuals with small amounts of trading income (this includes income from self-employment, casual work, or selling goods).
- The Trading Allowance is £1,000 per tax year.
- You can choose to either:
- Deduct your actual business expenses when calculating your taxable profit.
- Claim the £1,000 Trading Allowance. If your total trading income is £1,000 or less, you won’t pay any income tax on it. If your income is above £1,000, you can deduct the £1,000 allowance from your income.
Important: You cannot claim both the Trading Allowance and deduct your actual business expenses. You need to choose the option that is most beneficial for you.
2. Property Allowance:
- This allowance works similarly to the Trading Allowance but applies to income from property, such as renting out a room in your home, a garage, or a driveway.
- The Property Allowance is also £1,000 per tax year.
- Again, you can choose to either deduct your actual property expenses or claim the £1,000 Property Allowance. You can’t claim both.
How to Claim These Allowances
Unlike the Personal Allowance which is usually applied automatically, you need to actively claim the Trading Allowance or the Property Allowance on your Self Assessment tax return. You will indicate that you are claiming the allowance when you fill out the relevant sections of the tax return.
Maximising Your Tax Efficiency
It is important to know whether claiming the Trading Allowance or Property Allowance is more advantageous than deducting your actual expenses.
- Claiming the allowance might be simpler if your income is low or your actual expenses are less than £1,000.
- Deducting actual expenses (such as staff wages, accounting fees, insurance, marketing costs, and other legitimate business outgoings) will likely be more beneficial if these costs exceed £1,000.
Self-Employed National Insurance Contributions (2025-2026)
For the current tax year, there is an important change to how self-employed individuals pay National Insurance: Class 2 National Insurance contributions have been abolished.
The main National Insurance contribution for the self-employed is now Class 4.
Here are the important thresholds and rates you need to know:
| Category | Threshold/Limit | Rate |
|---|---|---|
|
Small Profits Threshold (SPT) |
£6,725 |
N/A |
|
Lower Profits Limit (LPL) |
£12,570 |
N/A |
|
Upper Profits Limit (UPL) |
£50,270 |
N/A |
|
Class 4 NICs (Above LPL) |
£12,570 to £50,270 |
6% |
|
Class 4 NICs (Above UPL) |
Over £50,270 |
2% |
What This Means for You
- Profits below £6,725: You will not pay National Insurance contributions, but you will still get National Insurance credits.
- Profits between £6,725 and £12,570: You will not pay National Insurance contributions.
- Profits between £12,570 and £50,270: You will pay Class 4 NICs at 6%.
- Profits above £50,270: You will pay Class 4 NICs at 6% on profits up to £50,270 and 2% on profits above that.
How to File Your Self-Assessment Tax Return
As soon as you start earning profits from self-employment, you must register as self-employed with HMRC. This should be done as soon as possible to avoid potential penalties.
The easiest way to register is usually online through the HMRC website. You can also register by post using a paper form or through some commercial accounting software.
What Happens After Registration
- HMRC will issue you a Unique Taxpayer Reference (UTR) number. You will need this number every time you file your Self Assessment tax return and communicate with HMRC about your taxes.
- You will be set up to pay your taxes through the Self Assessment system.
- You will automatically contribute Class 4 National Insurance through your Self Assessment if your profits exceed the Lower Profits Limit (£12,570 for the 2025-2026 tax year). You will also receive National Insurance credits if your profits are above the Small Profits Threshold (£6,725) even though Class 2 NICs have been abolished.
FAQs
The self-employed Personal Allowance for the current tax year (2025-2026) is £12,570. This is the amount of income you can earn before you start paying income tax. It applies to all UK taxpayers, whether employed or self-employed.
The current income tax rates for the self-employed in the UK (for the 2025-2026 tax year) are tiered. You’ll pay 0% on income up to £12,570 (your Personal Allowance), 20% on income between £12,571 and £50,270 (the basic rate), 40% on income between £50,271 and £125,140 (the higher rate), and 45% on income over £125,140 (the additional rate).
As a self-employed individual, you pay your income tax and National Insurance contributions through the Self Assessment system. You’ll need to register with HMRC and then file an online tax return each year, usually by the 31st of January following the end of the tax year. Payments are also typically due by this date.
You can claim allowable business expenses that were incurred wholly and exclusively for your business. These might include costs for office supplies, business travel, professional fees, marketing, and the cost of goods you sell. Deducting these expenses reduces your taxable profit.
Self-employed National Insurance primarily consists of Class 4 contributions. You pay Class 4 NICs on your profits above a certain threshold, which is £12,570 for the 2025-2026 tax year. The rate is 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Class 2 NICs have been abolished.
Get Expert Help with Your Self-employed Tax Returns
This guide has broken down the key aspects of self-employed income tax rates and allowances for the tax year 2025, giving you the knowledge you need to handle your obligations with confidence. Whilst this information is a great starting point, remember that everyone’s situation is unique. Reaching out to our qualified tax advisors ensure you are doing everything right and paying exactly what you owe.
