Calculate your Income Tax and National Insurance as a sole trader or freelancer. Know exactly what you owe before Self Assessment.
| Tax | Rate | Applies to |
|---|---|---|
| Income Tax — Personal Allowance | 0% | First £12,570 of profit |
| Income Tax — Basic rate | 20% | £12,571 – £50,270 |
| Income Tax — Higher rate | 40% | £50,271 – £125,140 |
| Class 2 NI | £3.45/week | Profits above £12,570 |
| Class 4 NI | 9% | Profits £12,570 – £50,270 |
| Class 4 NI (upper) | 2% | Profits above £50,270 |
HMRC allows self-employed people to deduct "wholly and exclusively" business expenses from their income before calculating tax. Common allowable expenses include: office costs (stationery, phone bills, broadband), travel (fuel, public transport for business journeys — but not commuting), equipment and tools, professional subscriptions, marketing and advertising, accountancy fees, and a proportion of home costs if you work from home.
You must register with HMRC as self-employed by 5 October following the end of the tax year in which you started working for yourself. You must submit a Self Assessment tax return each year and pay any tax owed by 31 January. Failure to register or file on time results in penalties. You should also register for VAT if your turnover exceeds £90,000 in any 12-month period.
Self-employed people pay two types of National Insurance. Class 2 NI is a flat weekly amount (£3.45/week for 2024/25) paid if your profits exceed the Small Profits Threshold of £12,570. Class 4 NI is a percentage of your profits — 9% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Both contribute towards your entitlement to the State Pension and certain benefits.
No. You pay Income Tax on your taxable profit — that is, your total income minus allowable business expenses and your Personal Allowance (£12,570 for 2024/25). If your total taxable income is below the Personal Allowance, you pay no Income Tax, though Class 2 NI may still apply if profits exceed the Small Profits Threshold. Always keep accurate records of all income and expenses to support your Self Assessment return.
Yes — a common mistake for new sole traders is spending all their income without setting aside money for tax. A simple rule of thumb is to save 25–30% of each payment you receive into a separate account. This covers both your Income Tax and National Insurance liability. Your actual bill will depend on your profit level, but having a buffer prevents the January Self Assessment deadline from becoming a financial crisis.