Self-employed tax calculator 2026/27

Self-employed tax: how it works

When you're self-employed, you pay Income Tax on your profits (not your turnover) using the same bands as employed people. But instead of employer and employee NI being handled by a company, you pay two types of National Insurance yourself: Class 2 and Class 4.

The rates for 2026/27:

Tax/NI type	Rate	Threshold
Income Tax (basic)	20%	£12,571 to £50,270
Income Tax (higher)	40%	£50,271 to £125,140
Income Tax (additional)	45%	Over £125,140
Class 2 NI	£3.45/week (£179/year)	Profits over £6,725
Class 4 NI (main)	9%	£12,570 to £50,270
Class 4 NI (upper)	2%	Over £50,270

Calculating your taxable profit

Your taxable profit is your total income minus allowable business expenses. If you invoice £45,000 in a year and spend £8,000 on legitimate business expenses, your taxable profit is £37,000. You only pay tax on the £37,000.

Allowable expenses include anything "wholly and exclusively" for business purposes: equipment, software subscriptions, travel to client sites, professional insurance, accountancy fees, a proportion of home office costs, phone bills, and business-related training.

Worked example: £45,000 turnover, £8,000 expenses

Taxable profit: £37,000. Here's the full breakdown:

Component	Calculation	Amount
Income Tax	(£37,000 - £12,570) × 20%	£4,886
Class 2 NI	£3.45 × 52 weeks	£179
Class 4 NI	(£37,000 - £12,570) × 9%	£2,199
Total tax bill		£7,264

Your take-home after tax: £37,000 - £7,264 = £29,736. Effective tax rate: 19.6% of your profit. Compare that to an employee earning £37,000 who'd take home about £29,100 after Income Tax and employee NI. The numbers are surprisingly close, but the self-employed person also has to cover their own pension, sick pay, and holiday.

Payment on account: the January shock

This is where most new freelancers get caught out. HMRC doesn't just ask you to pay this year's tax. They also ask for 50% of next year's estimated tax in advance. These are called "payments on account".

Using our example above, your first January tax bill would be:

• Full year's tax: £7,264
• First payment on account (50% of this year's bill): £3,632
• Total due 31 January: £10,896

Then on 31 July, you'll pay the second payment on account: another £3,632. So in your first full year of freelancing, you effectively pay 18 months of tax in 12 months. It evens out in subsequent years (because you've already paid most of the current year in advance), but that first January bill shocks people.

If your income changes significantly, you can apply to reduce your payments on account. But if you reduce them too much and underpay, HMRC charges interest on the shortfall.

Expenses: what you can actually claim

Common allowable expenses for freelancers include:

• Computer equipment and software (full cost if under £1,000, or capital allowances if over)
• Phone and internet (business proportion only)
• Travel to clients (not commuting to a regular workplace)
• Professional indemnity insurance
• Accountancy and bookkeeping fees
• Home office costs (simplified: £6/week flat rate, or actual proportion of bills)
• Marketing and website costs
• Professional subscriptions and training
• Stationery, postage, and printing

You cannot claim everyday clothes (even if you only wear them for work), food (unless overnight travel), fines and penalties, or anything with a personal use element unless you apportion it fairly.

The trading allowance

If your total self-employed income is under £1,000, you don't need to register or file a return. This is the trading allowance. It covers casual side income: selling things on eBay, occasional freelance gigs, tutoring a few hours a month. Once you pass £1,000 in a tax year, you must register with HMRC within 3 months.

Making Tax Digital: what's changing in 2026

From April 2026, self-employed people with income over £50,000 must use Making Tax Digital for Income Tax (MTD ITSA). This means keeping digital records using compatible software (not spreadsheets) and submitting quarterly updates to HMRC instead of a single annual return.

Those earning between £30,000 and £50,000 will join MTD from April 2027. Below £30,000, there's no confirmed date yet. The quarterly updates don't change how much tax you owe; they just spread the reporting throughout the year. HMRC-compatible software includes FreeAgent, Xero, QuickBooks, and several others.

Compared to employment: the real picture

As a freelancer earning £37,000 profit, you keep roughly £29,736. An employee on £37,000 keeps about £29,100. The freelancer is slightly better off in cash terms. But the employee gets employer pension contributions (typically £1,110 at 3%), paid holiday (worth £5,500+ at that salary), statutory sick pay, and employer NI contributions toward their state pension.

When you factor in those hidden employment benefits, the self-employed person needs to earn about 15-20% more in gross profit to match an equivalent employed position. That's before you account for the time spent on admin, invoicing, chasing late payments, and doing your own tax return.

For a complete breakdown of how self-employed tax works, including deadlines, record-keeping, and common mistakes, read our full guide: Self-employed tax explained: what you owe HMRC in 2026/27.