Self-employed workers in the UK pay Income Tax plus National Insurance on profits — but can deduct a wide range of business expenses first. Here’s everything you need to know about your tax obligations.
Tax Overview for Self-Employed
| Tax | Rate | When You Pay |
|---|---|---|
| Income Tax | 20% / 40% / 45% | On profits above Personal Allowance (£12,570) |
| Class 2 NI | £3.45/week | On profits above £12,570 |
| Class 4 NI | 6% / 2% | On profits £12,570–£50,270 / above £50,270 |
| VAT | 20% (standard) | When turnover exceeds £90,000 |
Tax Calculation by Profit Level
| Annual Profit | Income Tax | Class 2 NI | Class 4 NI | Total Tax | Effective Rate |
|---|---|---|---|---|---|
| £15,000 | £486 | £179 | £146 | £811 | 5.4% |
| £20,000 | £1,486 | £179 | £446 | £2,111 | 10.6% |
| £30,000 | £3,486 | £179 | £1,046 | £4,711 | 15.7% |
| £40,000 | £5,486 | £179 | £1,646 | £7,311 | 18.3% |
| £50,000 | £7,486 | £179 | £2,246 | £9,911 | 19.8% |
| £60,000 | £11,432 | £179 | £2,446 | £14,057 | 23.4% |
| £80,000 | £19,432 | £179 | £2,846 | £22,457 | 28.1% |
Allowable Business Expenses
| Category | Examples |
|---|---|
| Office costs | Stationery, postage, software subscriptions |
| Travel | Business mileage (45p/mile first 10K), train/bus, parking |
| Home office | Flat rate £6/week or proportional actual costs |
| Communication | Business phone, internet (business %) |
| Stock/materials | Raw materials, goods for resale |
| Marketing | Website, advertising, business cards |
| Professional fees | Accountant, solicitor, professional subscriptions |
| Insurance | Professional indemnity, public liability |
| Equipment | Laptops, tools, furniture (capital allowances) |
| Training | Courses that update existing skills |
Key Dates
| Date | Deadline |
|---|---|
| 5 October | Register for Self Assessment (first year) |
| 31 October | Paper tax return deadline |
| 31 January | Online tax return + tax payment deadline |
| 31 July | Second payment on account |
Payments on Account
Once your tax bill exceeds £1,000, HMRC requires payments on account — advance payments toward next year’s bill:
- 31 January: 50% of estimated bill + previous year’s balance
- 31 July: Second 50% of estimated bill
This means in your first profitable year, you may owe 150% of your tax bill in January (last year’s bill + first payment on account).
Bottom Line
Set aside 25–30% of profits for tax from day one. Claim every legitimate business expense to reduce your taxable profits. Register for Self Assessment as soon as you start trading, and either use accounting software (FreeAgent, Xero, QuickBooks) or hire an accountant. The biggest mistake self-employed workers make is not saving for tax and facing a surprise bill in January.
See our how to start a business UK or best business bank accounts for more.