Self-employed workers have to pay income tax and National Insurance contributions on their earnings. Here’s what you need to know about tax if you're self-employed
If you work for yourself as a sole trader or a freelancer then you are self-employed when it comes to paying the tax you owe. Depending on how much you earn, you may have to pay both income tax and National Insurance contributions. If you have just started working for yourself, the first step is to register as self-employed with HMRC.
How much income tax do self-employed workers pay?
Income tax is only paid if you earn over a certain amount (£12,570); this threshold is known as the personal tax allowance.
Rates of income tax are the same for both self-employed workers and employees but if you work for yourself, the way that you calculate and pay the tax you owe is different. While employees pay tax under the PAYE system, self-employed workers must complete a self assessment income tax return in January every year. They must then pay the income tax and Class 4 National Insurance contributions (based on business profits) that they owe to HMRC in two instalments on 31 January and 31 July.
What is the personal tax allowance?
In the UK, you don't pay tax on earnings under the personal tax allowance.
- The personal tax allowance is £12,570 (fixed until 2025/26).
However, if you earn over £100,000, your income tax personal allowance goes down by £1 for every £2 earned above £100,000.
What are the UK income tax bands?
Tax payers (including the self-employed) pay income tax at specific tax rates on earnings within specific income bands. Income tax bands can change from one year to the next.
UK income tax rates and bands are:
- 0% tax on income up to the tax threshold of £12,570
- 20% tax on earnings between £12,571 and £50,270
- 40% tax on earnings between £50,271 and £125,140
- 45% on earning over £125,141
How much National Insurance do self-employed workers pay?
The amount of National Insurance the self employed have to pay changed on 6 April 2024. The self employed no longer have to pay Class 2 contributions (they were payable at a flat rate of £3.45 a week on annual profits above £6,725).
Class 4 NICs are payable on yearly profits over £9,569. Class 4 tax rates and thresholds for 2024/25 are:
- 6% on profits between £12,570 and £50,270 (previously 9%)
- 2% on profits over £50,270
National Insurance contributions are paid at the same time as income tax as part of your self assessment tax return.
When do the self-employed pay tax and NICs?
As a self-employed person, you will pay your tax and NICs on the 31 January following the end of your tax year. However, HMRC will ask for payments on account for the following year's estimated tax - on 31 January and 31 July each year. Therefore, after your first year, your tax bill may actually be 150% of the amount you were expecting, with a further 50% due in July.
What happens if I don't pay my tax bills on time?
You will have to pay penalty charges. As well as failing to complete your returns on time, you can be fined for failing to register your business when you start up (you could be fined up to 100% of the tax due in addition to any unpaid tax). It's best to register as soon as you can - it's such an easy process. You can register online using the
What if self-employment is not your only income?
You have to pay tax on all kinds of income earned during the tax year. That includes any wages earned as an employee as well as any profits you make from self-employment. You also need to declare any income from pensions, rental income, trust income and interest from savings on your self assessment tax return.
What happens if I don't pay my tax bills on time?
You will have to pay penalty charges. As well as failing to complete your returns on time, you can be fined for failing to register your business when you start up (you could be fined up to 100% of the tax due in addition to any unpaid tax). It's best to register as soon as you can - it's such an easy process. You can register online using the
How to pay less tax if you're self-employed
As a self-employed worker, you only pay tax on your profits - not on your total earnings. It means that you can deduct allowable business expenses from your income before you pay tax. These costs must be business-related. Making sure you claim for all your allowable expenses, will help you minimise the amount of tax you pay.
What are allowable business expenses?
Allowable business expenses include:
- Office expenses such as phone and internet, software, stationery and postage;
- Stock and materials;
- Marketing costs;
- Costs associated with running a business from your home such as a share of utility bills;
- Business premises, including rent, building insurance and utility bills;
- Business travel costs including car insurance and fuel as well as train, plane and bus tickets and taxi costs. Business travel does not include costs associated with getting from home to work and back;
- Accountancy costs, bank fees, overdraft charges and legal bills;
- Business insurance.
The government publishes guidance on business expenses; it also offers simplified expenses schemes for self-employed workers if you work from home, run a vehicle for your business or live in your business premises.
