If you are a UK sole trader, you can calculate your self-employed tax in five steps: find your profit, subtract the Personal Allowance, apply the income tax bands, add Class 4 National Insurance, then plan for payments on account. This walkthrough uses the 2026/27 rates for England, Wales and Northern Ireland, with every step shown on a real profit figure. Scotland has its own income tax bands, covered in a separate guide.
Search intent: you want the actual bill on your profit, not a rough percentage. By the end of the first three sections you will have the method. The worked example and the profit-level table then let you check your own number in minutes.
What is self-employed tax calculated on?
Self-employed tax is calculated on your profit, not your turnover. Profit is your total self-employed income minus allowable business expenses for the tax year. You pay income tax on that profit through Self Assessment, plus Class 4 National Insurance once profits pass 12,570 pounds, with Class 2 treated as paid from 7,105 pounds.
That one distinction catches people out every year. A freelancer who invoices 60,000 pounds and has 15,000 pounds of allowable expenses has a profit of 45,000 pounds, and 45,000 pounds is the figure every calculation below starts from. Turnover never enters the tax calculation directly.
Rates last reviewed: October 2026. All rates and thresholds below are from GOV.UK’s Income Tax rates and Personal Allowances page and the GOV.UK rates and allowances page for National Insurance contributions.
Step 1: Work out your taxable profit
Start with everything your business was paid in the tax year, then subtract allowable expenses: software, equipment, travel for work, professional fees, insurance, marketing, and the business share of home costs. What remains is your taxable profit.
Keep the two figures separate in your records. Clean invoicing makes this step trivial at year end, because your income total is already listed invoice by invoice. If you do not already, run your billing through the LancerBill invoice generator so the income side of the calculation is never a reconstruction job.
Tip: Do this calculation quarterly, not once a year. A running profit estimate means the January bill is a number you already know, and the set-aside habit in our guide to how much tax to set aside when self-employed keeps the cash ready.
Step 2: Apply the Personal Allowance, and watch the taper
For 2026/27 the standard Personal Allowance is 12,570 pounds. That slice of your profit is taxed at 0 percent. Subtract it from your profit to get your taxable income.
The trap sits further up the scale. Once your income passes 100,000 pounds, the allowance falls by 1 pound for every 2 pounds above that line. At 110,000 pounds of profit your allowance is 7,570 pounds, not 12,570 pounds. At 125,140 pounds it is gone completely. A calculation that ignores the taper understates the bill in this range, and the worked comparison after the main example shows exactly by how much.
Step 3: Calculate income tax band by band
Income tax is charged in slices, not at one flat rate on everything. For 2026/27 in England, Wales and Northern Ireland, the slices of taxable income are:
| Slice of taxable income | Rate | What it means on your profit |
|---|---|---|
| First 37,700 pounds after the allowance | 20 percent | Profit from 12,571 to 50,270 pounds |
| Next slice, up to 125,140 pounds of total income | 40 percent | Profit from 50,271 to 125,140 pounds |
| Everything above 125,140 pounds | 45 percent | Only the part above the line, never the whole profit |
The most common error is applying 40 percent to the whole profit once it crosses 50,270 pounds. Only the slice above the threshold pays 40 percent. The first 37,700 pounds of taxable income always pays 20 percent, however much you earn.
If you also have employment or pension income, those use up your allowance and basic-rate band first, and your self-employed profit stacks on top. LancerBill’s UK income tax calculator shows the band slicing for combined income if you want to test that case.
Step 4: Add Class 4 and Class 2 National Insurance
National Insurance is the second half of the bill, and it runs on the same profit figure. For 2026/27, HMRC charges Class 4 at 6 percent on profits between the Lower Profits Limit of 12,570 pounds and the Upper Profits Limit of 50,270 pounds, and at 2 percent on profits above 50,270 pounds, per the official GOV.UK National Insurance rates table.
Class 2 works differently. If your profits reach the Small Profits Threshold of 7,105 pounds for 2026/27, you are treated as having paid Class 2, and it protects your State Pension record at no extra cost. If your profits are below 7,105 pounds, you can pay Class 2 voluntarily at 3.65 pounds per week, which is 189.80 pounds for a full year, to keep the qualifying year.
Watch out: Older pages still show the 2025/26 Class 2 figures of 6,845 pounds and 3.50 pounds per week. For 2026/27 the GOV.UK table says 7,105 pounds and 3.65 pounds per week. Check the tax year on any rates page before you trust its numbers.
That is the whole calculation. Profit, minus allowance, through the tax bands, plus Class 4 on the same profit. Everything else, including student loan repayments and pension relief, adjusts this core figure rather than replacing it.
Worked example: a sole trader with sixty thousand pounds of profit
Meet a freelance designer in England with 60,000 pounds of profit in 2026/27, no other income, no student loan. Here is her bill, step by step. Assumptions: standard Personal Allowance, England, Wales and Northern Ireland bands, profit already net of allowable expenses.
| Step | Calculation | Result |
|---|---|---|
| Taxable income | 60,000 minus 12,570 allowance | 47,430 pounds |
| Income tax at 20 percent | 37,700 x 0.20 | 7,540 pounds |
| Income tax at 40 percent | 9,730 x 0.40 | 3,892 pounds |
| Total income tax | 7,540 plus 3,892 | 11,432 pounds |
| Class 4 at 6 percent | 37,700 x 0.06 | 2,262 pounds |
| Class 4 at 2 percent | 9,730 x 0.02 | 194.60 pounds |
| Total Class 4 | 2,262 plus 194.60 | 2,456.60 pounds |
| Total bill | 11,432 plus 2,456.60 | 13,888.60 pounds |
| Take-home | 60,000 minus 13,888.60 | 46,111.40 pounds |
Notice the pattern: the income tax slices and the Class 4 slices split at exactly the same points, 37,700 pounds of taxable income for tax and the 12,570 to 50,270 profit band for National Insurance. Once you see that the two systems share one skeleton, you can run any profit figure through it. Or skip the arithmetic: LancerBill’s Self-Employed Tax Calculator UK runs these exact steps on your profit and shows the same breakdown.
Now the taper comparison most guides skip. At 110,000 pounds of profit, the reduced allowance of 7,570 pounds gives taxable income of 102,430 pounds. Income tax is 42,700 at 20 percent (8,540 pounds) plus 59,730 at 40 percent (23,892 pounds), totalling 32,432 pounds. Class 4 is 2,262 pounds plus 59,730 at 2 percent (1,194.60 pounds), totalling 3,456.60 pounds. The full bill is 35,888.60 pounds. Had you wrongly used the full 12,570 pound allowance, you would have calculated 31,432 pounds of income tax and understated the bill by exactly 1,000 pounds.
What will you owe at other profit levels?
The table below shows the combined income tax and Class 4 bill at seven common profit levels for 2026/27, assuming no other income and the standard Personal Allowance, with the tapered allowance applied at 110,000 pounds. Your own figure will differ if you have employment income, student loan repayments or pension contributions.
| Profit | Income tax | Class 4 NI | Total bill | Effective rate |
|---|---|---|---|---|
| 20,000 pounds | 1,486 pounds | 445.80 pounds | 1,931.80 pounds | 9.7 percent |
| 30,000 pounds | 3,486 pounds | 1,045.80 pounds | 4,531.80 pounds | 15.1 percent |
| 40,000 pounds | 5,486 pounds | 1,645.80 pounds | 7,131.80 pounds | 17.8 percent |
| 50,000 pounds | 7,486 pounds | 2,245.80 pounds | 9,731.80 pounds | 19.5 percent |
| 60,000 pounds | 11,432 pounds | 2,456.60 pounds | 13,888.60 pounds | 23.1 percent |
| 80,000 pounds | 19,432 pounds | 2,856.60 pounds | 22,288.60 pounds | 27.9 percent |
| 110,000 pounds | 32,432 pounds | 3,456.60 pounds | 35,888.60 pounds | 32.6 percent |
Two lessons hide in that table. First, the effective rate is always far below the headline band rate, because the allowance and the 20 percent slice do heavy lifting. Second, the jump between 50,000 and 60,000 pounds is where the 40 percent and the taper mechanics start to matter, so that is the profit range where a rough percentage set-aside is most likely to leave you short.
Step 5: Plan for payments on account
Calculating the bill is only half the job. If your Self Assessment bill is over 1,000 pounds, HMRC usually adds payments on account: two advance payments towards next year’s bill, each equal to half of this year’s bill, due on 31 January and 31 July.
Run the worked example forward. A first-year bill of 13,888.60 pounds means a January payment of 13,888.60 plus the first payment on account of 6,944.30 pounds, a total of 20,832.90 pounds leaving your account in one month. A second 6,944.30 pounds follows in July. First-timers who saved only for the bill itself get caught by this every year, and our guide to what to do if you missed the Self Assessment deadline covers the penalties if it goes wrong. Looking ahead, Making Tax Digital for Income Tax will move higher-earning sole traders onto quarterly reporting, which makes a running calculation even more valuable.
Tip: Recalculate after any big change: a lost client, a price rise, a large equipment purchase. Your payments on account are based on last year’s bill, and you can apply to reduce them if this year’s profit will clearly be lower. Do not reduce them on a guess, because HMRC charges interest on the shortfall.
Key takeaways
- Tax is on profit, not turnover: income minus allowable expenses is your starting figure.
- Subtract the 12,570 pound Personal Allowance, then tax in slices: 20 percent to 50,270 pounds, 40 percent to 125,140, 45 percent above.
- Class 4 National Insurance adds 6 percent on profits between 12,570 and 50,270 pounds, and 2 percent above that.
- Class 2 is treated as paid once profits reach 7,105 pounds in 2026/27; below that it is voluntary at 3.65 pounds per week.
- Above 100,000 pounds the allowance tapers away, which added exactly 1,000 pounds to the bill in the 110,000 pound comparison.
- Budget for payments on account on top of the bill itself, or January will hurt.
Frequently asked questions
How do I calculate self-employed tax in the UK for 2026/27?
Take your profit, subtract the 12,570 pound Personal Allowance, then apply income tax in slices: 20 percent on the next 37,700 pounds, 40 percent up to 125,140 pounds of income, 45 percent above. Add Class 4 National Insurance at 6 percent on profits between 12,570 and 50,270 pounds and 2 percent above. The worked example in this guide shows every step on a 60,000 pound profit.
Is self-employed tax charged on turnover or profit?
On profit. Profit is your total self-employed income minus allowable business expenses for the tax year. If you invoice 60,000 pounds and claim 15,000 pounds of allowable expenses, you are taxed on 45,000 pounds, not on the 60,000 pounds you billed.
Do I have to pay Class 2 National Insurance in 2026/27?
Not as a separate payment if your profits reach the Small Profits Threshold of 7,105 pounds, because you are then treated as having paid Class 2 and your State Pension record is protected. If profits are below 7,105 pounds, Class 2 is voluntary at 3.65 pounds per week for 2026/27, per the GOV.UK National Insurance rates table.
Why is my first Self Assessment bill bigger than the tax I calculated?
Because of payments on account. If your bill is over 1,000 pounds, HMRC usually adds a first advance payment of half the bill towards next year, due the same 31 January, with the second half due on 31 July. On a 13,888.60 pound bill, the January payment becomes 20,832.90 pounds.
Does this calculation apply in Scotland?
No. The bands in this guide are the England, Wales and Northern Ireland rates for 2026/27. Scotland sets its own income tax bands and rates for Scottish taxpayers, with more bands and different rates, although the Personal Allowance and National Insurance thresholds are the same. A separate guide covers the Scottish calculation.
This guide is for general information only and is not financial, tax or legal advice.