So you've gone freelance. Or maybe you've started a side hustle. Either way, you're now "self-employed" in HMRC's eyes, and that means you're responsible for working out and paying your own tax. Nobody's going to do it for you.
The good news: it's not as scary as it sounds. The tax rules are actually pretty logical once you understand the basics. Here's everything you need to know for the 2025/26 tax year.
This is the single most important thing to understand. If your business brings in £45,000 but you spent £8,000 running it, HMRC only cares about the £37,000 profit. That's what gets taxed.
And the tax bands? They're exactly the same ones that employees pay:
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
No special self-employed rates. No different thresholds. Same system, you just have to calculate it yourself via Self Assessment.
On top of income tax, self-employed people pay two types of National Insurance:
Class 2 is small. Class 4 is where the real cost sits. Use our National Insurance calculator to see exactly what you'll owe.
Anything you spend "wholly and exclusively" for your business can be deducted from your revenue before tax. The more legitimate expenses you claim, the lower your profit, and the less tax you pay. Common ones include:
If you work from home, you can also claim a proportion of your household costs (heating, broadband, council tax) based on how much of your home you use for work and for how long.
If your total self-employment income is under £1,000 a year, you don't need to tell HMRC about it at all. It's completely tax-free.
If you earn more than £1,000, you have a choice: you can either deduct the £1,000 trading allowance instead of your actual expenses, or you can claim your real expenses. You can't do both. For most people earning any serious money, claiming actual expenses works out better.
This catches almost everyone off guard. When you file your first Self Assessment, HMRC doesn't just ask for the tax you owe. They also ask for a payment on account — an advance payment towards next year's tax bill, based on the assumption you'll earn roughly the same again.
The payment on account is 50% of your previous year's tax bill, due on 31 January and 31 July. So in your second year of self-employment, you could end up paying 150% of a normal year's tax in one go. Budget for this from day one.
You must register for Self Assessment with HMRC as soon as you start self-employment. Then, for each tax year (ending 5 April), the deadlines are:
Miss the January deadline and you'll get an automatic £100 fine, even if you owe nothing. The penalties get worse the longer you leave it.
From April 2026, if your self-employment income is over £50,000, you'll need to use MTD-compatible software to keep digital records and send quarterly updates to HMRC. This will extend to those earning over £30,000 from April 2027.
If you're already using accounting software like Xero or FreeAgent, you're probably halfway there. If you're still running everything on spreadsheets, now's the time to make the switch.
VAT is separate from income tax. You must register for VAT if your taxable turnover (revenue, not profit) exceeds £90,000 in any 12-month rolling period. Once registered, you charge VAT on your invoices and pay it to HMRC.
If you're getting close to the threshold, run the numbers with our VAT calculator.
As an employee, your employer contributes to your pension automatically. When you're self-employed, that doesn't happen. If you don't set up your own pension, you won't have one.
The silver lining: pension contributions reduce your taxable profit. A basic-rate taxpayer putting £100 into a pension only actually pays £80 — the government adds the other £20 as tax relief. Higher-rate taxpayers can claim back even more through Self Assessment. Use our pension calculator to see how much you could save.
Let's say you're a freelance graphic designer. You invoiced £45,000 this year and had £8,000 in legitimate expenses (laptop, software, travel, accountant). Your taxable profit is £37,000.
| Portion | Calculation | Tax |
|---|---|---|
| Personal Allowance (£0 – £12,570) | £12,570 at 0% | £0 |
| Basic rate (£12,571 – £37,000) | £24,430 at 20% | £4,886 |
| Total income tax | £4,886 | |
| Type | Calculation | Amount |
|---|---|---|
| Class 2 | £3.45 × 52 weeks | £179.40 |
| Class 4 | £24,430 at 6% | £1,465.80 |
| Total NI | £1,645.20 | |
Total tax + NI: £6,531.20 on a £37,000 profit. That's an effective rate of about 17.7%. You'd take home roughly £30,469.
Run your own numbers with our self-employed tax calculator or the income tax calculator.
Enter your income and expenses to see exactly what you owe in tax and National Insurance.