When you work for yourself, no employer deducts Income Tax and National Insurance before paying you. Every invoice lands in your account gross, and it is your job to work out how much to set aside for HMRC. Learning how to calculate tax on self-employment income properly keeps you out of debt, avoids late-filing penalties, and protects your cash flow.

This guide is written for sole traders and freelancers in the UK. The figures below apply to the 2026/27 tax year (6 April 2026 to 5 April 2027). Always check the latest rates on gov.uk before you file, because thresholds can change each April.

Start with Accurate Records

Before you can estimate your tax bill, you need reliable records of income and expenses. HMRC requires self-employed workers to keep records for at least five years after the 31 January Self Assessment deadline. For each sale, note the date, amount, and what it was for. For each expense, keep the receipt and record why it was a business cost.

Good record keeping also makes it easier to claim every allowable expense. Many self-employed women run businesses from home, so make sure you understand the home working expenses you can claim through HMRC, such as a proportion of heating, lighting, broadband, and council tax. You can use accounting software, a spreadsheet, or a simple cashbook. Whatever you choose, update it weekly rather than leaving it until January.

Taxes Self-Employed People Pay in 2026/27

As a UK sole trader, your profit is taxed through Self Assessment. Profit is your total income minus allowable business expenses. For the 2026/27 tax year you will usually pay:

• Income Tax on profits above the personal allowance.
• Class 4 National Insurance contributions (NICs) on profits above the Lower Profits Limit.
• Class 2 NICs were abolished for most self-employed people from 6 April 2024, HMRC says, but you can still make voluntary payments if you have low profits and want to protect your State Pension.

For 2026/27, the personal allowance remains frozen at £12,570, according to HMRC. Income Tax rates on self-employment profits are:

• 0% on profits up to £12,570 (personal allowance)
• 20% on profits between £12,570 and £50,270 (basic rate)
• 40% on profits between £50,270 and £125,140 (higher rate)
• 45% on profits above £125,140 (additional rate)

If you also have income from employment, pensions, savings, or dividends, that uses up your personal allowance and tax bands first.

HMRC sets Class 4 NICs for 2026/27 as follows:

• 8% on profits between £12,570 and £50,270
• 2% on profits above £50,270

Claiming Expenses or the Trading Allowance

You can reduce your taxable profit by deducting allowable business expenses. These must be “wholly and exclusively” for business and can include office supplies, professional subscriptions, travel, marketing, and a reasonable share of home costs. Alternatively, if your turnover is £1,000 or less in 2026/27, HMRC allows you to use the trading allowance and not report expenses at all. If your turnover is higher, you can still choose the £1,000 allowance instead of actual expenses, but only if it gives a lower tax bill.

Calculate Tax on Self-Employment Income: A Simple Example

Imagine your freelance turnover in 2026/27 is £42,000 and your allowable expenses total £8,000. Your profit is £34,000.

• Income Tax: £34,000 minus £12,570 = £21,430 taxed at 20% = £4,286.00
• Class 4 NICs: £34,000 minus £12,570 = £21,430 taxed at 8% = £1,714.40
• Total estimated tax and NICs: £6,000.40

As a rough rule of thumb, many sole traders set aside 25–30% of their profit each month to cover Income Tax and Class 4 NICs. If you expect to earn above the higher-rate threshold, increase that reserve to around 40%.

Use HMRC’s Online Tax Calculator

HMRC provides a free Self Assessment tax calculator that gives an estimate of what you owe. You enter your self-employment profit, any employment income, and other taxable income. It will show your Income Tax and NICs liability. Update it throughout the year as your income changes. This is especially useful if your income fluctuates, as it often does for consultants, creatives, and other service-based businesses.

Deadlines and Payments on Account

The UK tax year runs from 6 April to 5 April. HMRC’s key dates for Self Assessment are:

• 5 October 2026: register for Self Assessment if you became newly self-employed in 2025/26.
• 31 January 2027: file your online tax return and pay any tax owed for the 2025/26 tax year.
• 31 July 2027: second payment on account for the 2026/27 tax year.

For the 2026/27 tax year, HMRC usually asks for payments on account if your tax bill is more than £1,000. These are advance payments towards next year’s bill, with each payment equal to half of your previous year’s liability. This can be a shock the first year, so build it into your cash-flow forecast. If your income drops, you can apply to reduce your payments on account through your HMRC online account.

Making Tax Digital for Income Tax Self Assessment

Under HMRC’s Making Tax Digital programme, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is being introduced in phases. From April 2026, self-employed people and landlords with turnover or property income above £50,000 must keep digital records and submit quarterly updates to HMRC. The threshold drops to £30,000 from April 2027. Preparing now with compatible software will make the transition easier. Our Making Tax Digital sole trader checklist for 2026 sets out the practical steps.

When to Get Professional Help

Tax rules become more complex if you have income from several sources, claim capital allowances, employ staff, or operate as a limited company. A qualified accountant can often save you more than they cost, ensure you meet deadlines, and help you plan for the future. Many women in business find that professional advice gives them confidence to grow. If you are filing for the first time, our First Self Assessment Tax Return guide for sole traders walks through the form step by step.

Practical Action Steps for Your Self Assessment

1. Choose a record-keeping system and update it weekly.
2. Review your allowable expenses each month so nothing is missed.
3. Set aside 25–30% of profit for tax and NICs, or 40% if you expect higher-rate profits.
4. Use HMRC’s Self Assessment tax calculator to check your estimated bill.
5. Register for Self Assessment by 5 October if you are newly self-employed.
6. Prepare for MTD for ITSA if your turnover is above £50,000 from April 2026.

Learning to calculate tax on self-employment income takes time, but it does not have to be stressful. Keep accurate records, set aside money each month, use HMRC’s calculator, and seek advice when your situation changes. The sooner you get organised, the more control you have over your business finances.