A self-employed person in England, Wales or Northern Ireland pays no income tax on the first £12,570 of profit, then 20% up to £50,270, and on top of that Class 4 National Insurance at 6% across most of the same band [1]. Anyone whose gross self-employment income passes £1,000 in a tax year has to register for Self Assessment and tell HMRC, and the deadline to register is 5 October after that tax year ends [2].
Paying tax as a sole trader is a different mechanism from being taxed as an employee. There is no employer to deduct tax at source through PAYE, so the responsibility to calculate, report and pay falls on the individual, through the Self Assessment system. That means understanding which taxes apply, when they fall due, and how the money actually reaches HMRC.
This article sets out how self-employed tax works, the income tax bands and National Insurance classes that apply, the £1,000 trading allowance, how to register for Self Assessment, the filing and payment deadlines including payments on account, the practical ways to pay, and the shift to Making Tax Digital for Income Tax that is changing how sole traders report.
Key takeaways
- Self-employed profits are taxed at 20%, 40% and 45% above the £12,570 personal allowance, the same bands as employment income [1].
- Class 4 National Insurance is 6% on profits between £12,570 and £50,270, and 2% above that, for the 2026-27 tax year [3].
- Registration for Self Assessment is required once gross self-employment income exceeds £1,000, by 5 October after the tax year [2].
- The online filing and payment deadline is 31 January, with a second payment on account due 31 July [4].
- Making Tax Digital for Income Tax applies from 6 April 2026 to those with income above £50,000 [5].
How self-employed tax works in the UK
A self-employed person pays two taxes on their business profit: income tax and National Insurance. Profit means income minus allowable business expenses, and it is that net figure, not turnover, that both taxes are charged on [6]. Unlike an employee, whose tax is deducted automatically each payday through PAYE, a sole trader calculates the liability once a year through Self Assessment and pays it directly to HMRC [7].
The distinction from employment matters because it changes who carries the administrative burden. An employee never sees the mechanics of their deductions, whereas a sole trader is responsible for keeping records, working out the profit, filing the return and paying on time. The two systems can also overlap: someone with a job and a side business pays PAYE on the salary and Self Assessment on the self-employment profit, and the tax already paid through PAYE is credited in the return [8].
Income tax on self-employed profits
Income tax on self-employment follows the same bands as employment income. The personal allowance of £12,570 is tax-free, profits between £12,571 and £50,270 are taxed at the basic rate of 20%, profits between £50,271 and £125,140 at the higher rate of 40%, and anything above £125,140 at the additional rate of 45% [1]. The personal allowance itself tapers away above £100,000 of income, reduced by £1 for every £2 of income over that figure, and disappears entirely at £125,140 [1].
These bands apply to England, Wales and Northern Ireland; Scotland operates its own income tax rates and bands, so a Scottish sole trader calculates income tax on a different scale [1]. The table below sets out the bands that apply outside Scotland.
| Band | Taxable profit | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% [[1]](https://www.gov.uk/income-tax-rates) |
| Basic rate | £12,571 to £50,270 | 20% [[1]](https://www.gov.uk/income-tax-rates) |
| Higher rate | £50,271 to £125,140 | 40% [[1]](https://www.gov.uk/income-tax-rates) |
| Additional rate | Above £125,140 | 45% [[1]](https://www.gov.uk/income-tax-rates) |
Because the personal allowance is shared across all sources of income, a sole trader who also draws a salary uses the allowance against the combined total, which is a common point of confusion for people running a business alongside a job [8].
National Insurance for the self-employed
The self-employed pay National Insurance through two classes, Class 2 and Class 4, and both changed shape in recent years. Class 4 is the main charge and is profit-based: for the 2026-27 tax year it is 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270 [3]. It is calculated and paid through the Self Assessment return alongside income tax, so there is no separate bill [9].
Class 2 is the flat-rate contribution that builds entitlement to the State Pension and certain benefits. Since 6 April 2024, self-employed people with profits above the Small Profits Threshold are treated as having paid Class 2 without making an actual payment, so it no longer adds to the bill for most traders [9]. For 2026-27 the Small Profits Threshold is £7,105, and those with profits below it can still pay Class 2 voluntarily, at £3.65 per week, to protect their contribution record [10]. The table below summarises the position.
| Class | Applies to | 2026-27 treatment |
|---|---|---|
| Class 4 (main) | Profits £12,570 to £50,270 | 6% [[3]](https://www.gov.uk/self-employed-national-insurance-rates) |
| Class 4 (upper) | Profits above £50,270 | 2% [[3]](https://www.gov.uk/self-employed-national-insurance-rates) |
| Class 2 (above SPT) | Profits above £7,105 | Treated as paid, no charge [[9]](https://www.litrg.org.uk/working/self-employment/national-insurance-self-employed) |
| Class 2 (voluntary) | Profits below £7,105 | £3.65 per week if chosen [[10]](https://www.bytestart.co.uk/self-employed-tax/national-insurance/) |
The £1,000 trading allowance
The trading allowance exempts the first £1,000 of gross self-employment or casual income from both income tax and National Insurance, and it is one of the most useful reliefs for anyone starting out or running a small side business [11]. Someone whose total gross trading income in a tax year is £1,000 or less does not need to tell HMRC about it or register for Self Assessment on account of that income [11].
The allowance applies before expenses, and a sole trader must choose between claiming it and deducting actual business expenses, because the two cannot be combined [11]. For a trader with very low costs, the £1,000 allowance is usually the better deal; for one with substantial expenses, deducting the real costs will reduce the taxable profit further [12]. The allowance covers all of a person's self-employed and casual income combined, so income from several small ventures is added together to test whether the £1,000 limit has been passed [12].
Registering for Self Assessment
Once gross self-employment income exceeds £1,000, registration for Self Assessment becomes mandatory, and the deadline is 5 October following the end of the tax year in which the income arose [2]. Registration tells HMRC the person needs to complete a tax return and generates the Unique Taxpayer Reference and the online account through which the return is filed [13]. A first-time registrant who leaves it too late risks a penalty for failing to notify HMRC of a liability, so the October date is the one to note when a business starts [2].
Registration is a one-off step, not an annual one. After the first registration, HMRC expects a return each year until the person tells it the self-employment has ended, and continuing to file is what keeps the account active [13]. A sole trader weighing up whether the self-employed route or an employed structure suits them can compare the two systems in the guide to PAYE and Self Assessment, since the choice affects both the paperwork and the timing of the tax [8].
The Self Assessment deadlines
Self Assessment runs on a fixed calendar, and the dates are the same every year. Missing them triggers automatic penalties, so the deadlines are the backbone of self-employed tax planning [14].
Filing deadlines
There are two filing deadlines, depending on how the return is submitted. A paper tax return must reach HMRC by 31 October following the end of the tax year, while an online return has until the following 31 January [4]. The overwhelming majority of sole traders file online, which is why 31 January is the date most associated with Self Assessment [7].
Missing the filing deadline brings an immediate £100 fixed penalty, even where no tax is owed, and further penalties build up the longer the return is outstanding [14]. The fixed penalty applies regardless of the size of the liability, so a nil or small return filed late still costs £100 [14].
Payment deadlines and payments on account
The balancing payment for a tax year is due by 31 January following that year, the same date as the online filing deadline [4]. On top of that, most sole traders make payments on account, which are advance instalments towards the next year's bill. A payment on account is required where the last Self Assessment bill was more than £1,000 and less than 80% of the tax was collected at source, and each instalment is half of the previous year's liability [15].
The two payments on account fall on 31 January and 31 July, so a trader in the system typically pays HMRC twice a year rather than once [15]. Late payment carries interest, which HMRC charges from the due date until the tax is paid, currently at a rate of 8.25% [16]. The table below sets out the core dates.
| Deadline | What is due |
|---|---|
| 5 October | Register for Self Assessment (first year) [[2]](https://www.gov.uk/set-up-self-employed) |
| 31 October | Paper tax return [[4]](https://www.gov.uk/self-assessment-tax-returns/deadlines) |
| 31 January | Online return, balancing payment, first payment on account [[4]](https://www.gov.uk/self-assessment-tax-returns/deadlines) |
| 31 July | Second payment on account [[15]](https://www.gov.uk/understand-self-assessment-bill/payments-on-account) |
How to actually pay the tax
Once the liability is known, HMRC offers several ways to pay, and the method chosen affects how quickly the payment clears. The fastest is online or telephone banking through Faster Payments, which usually reaches HMRC the same day or the next day [17]. Payment is also possible by debit card online, through the HMRC app, by direct debit, by CHAPS or BACS bank transfer, and by cheque through the post [17].
The clearing time is the practical catch. A same-day method such as Faster Payments can be used right up against the deadline, but a cheque or a first-time direct debit needs to be set up well in advance, because it can take several working days to reach HMRC [17]. A payment that leaves the trader's account before the deadline but reaches HMRC after it is still late, so allowing for the clearing time is part of paying on time [16]. Where a bill cannot be paid in full, HMRC offers a Time to Pay arrangement that spreads the amount over instalments, which is preferable to simply missing the date [17].
Making Tax Digital for Income Tax
The way self-employed people report their tax is changing. Making Tax Digital for Income Tax, which begins on 6 April 2026, replaces the single annual Self Assessment return with quarterly digital updates plus a year-end final declaration [5]. It applies first to sole traders and landlords whose combined self-employment and property income is above £50,000, and it requires records to be kept digitally in compatible software [5].
The rollout is phased by income level. Those above £50,000 join from 6 April 2026, those above £30,000 from April 2027, and those above £20,000 from April 2028 [18]. Under the new regime a trader sends four quarterly updates through the year and then a final declaration that confirms the full position, and that final declaration is still due by 31 January, keeping the familiar payment date in place [18]. A grace period applies to the quarterly-update penalties for those joining first, giving new entrants time to adjust to the cadence [18].
The practical effect is that self-employed record-keeping moves from an annual scramble to a quarterly rhythm, which rewards keeping the books current rather than reconstructing them each January [5]. The digital-record requirement makes accurate bookkeeping through the year a legal obligation rather than good practice [18].
When self-employment becomes payroll
Self-employment tax is only part of the picture for a growing business, because two common moves shift the trader into the PAYE system. The first is taking on staff: once a sole trader employs anyone, the business becomes an employer and must operate PAYE on the employee's wages, deducting income tax and National Insurance and reporting through Real Time Information [19]. That is a wholly different obligation from the trader's own Self Assessment, and it runs on its own deadlines.
The second is incorporating. A sole trader who forms a limited company and pays themselves a salary becomes both the employer and an employee of that company, and the salary is taxed through PAYE rather than Self Assessment [19]. At that point the business needs to produce compliant payslips and file RTI submissions, and a one-person company can use an instant payslip generator for an occasional payslip or move to full payroll software for sole traders once payments become regular. A business that reaches the point of hiring its first employee steps fully into employer territory, where an HMRC-recognised payroll platform handles the PAYE, National Insurance and RTI that self-employment never required.
Conclusion
Paying tax when self-employed comes down to a handful of fixed rules: profit is taxed at the same income tax bands as a salary, Class 4 National Insurance adds 6% across most of the basic-rate band, and the whole liability is reported and paid through Self Assessment on a calendar that turns on 31 January and 31 July. The trader who keeps records through the year, registers on time and understands payments on account meets those dates without strain.
The larger shift is towards real-time, digital reporting. Making Tax Digital for Income Tax turns the annual return into a quarterly habit, phased in by income from 6 April 2026, and it makes current, digital bookkeeping the foundation of self-employed tax rather than an afterthought. For a business that grows into employing people or incorporating, the tax question changes again, from Self Assessment on personal profit to PAYE on wages, and the sooner that transition is planned, the smoother it runs.
Frequently asked questions
How much can someone earn self-employed before paying tax?
A self-employed person pays no income tax on the first £12,570 of profit, because that is the personal allowance, and pays no tax at all on gross trading income of £1,000 or less thanks to the trading allowance [11]. Above the personal allowance, income tax applies at 20%, then 40% and 45% in the higher bands, and Class 4 National Insurance of 6% applies to profits above £12,570 [1]. Registration for Self Assessment is required once gross self-employment income passes £1,000 [2].
When does a self-employed person have to pay their tax bill?
The main payment deadline is 31 January following the end of the tax year, when the balancing payment for the year and the first payment on account both fall due [4]. A second payment on account is due by 31 July. Payments on account apply where the previous bill was over £1,000 and less than 80% of the tax was collected at source, and each instalment is half of the prior year's liability [15].
What National Insurance do the self-employed pay?
The self-employed pay Class 4 National Insurance, charged at 6% on profits between £12,570 and £50,270 and 2% above £50,270 for the 2026-27 tax year, calculated through the Self Assessment return [3]. Class 2 National Insurance is treated as paid for those with profits above the Small Profits Threshold of £7,105, so it no longer adds to the bill, though those below the threshold can pay it voluntarily at £3.65 per week to protect their State Pension record [9].
Do sole traders have to use Making Tax Digital?
Yes, in phases based on income. Making Tax Digital for Income Tax starts on 6 April 2026 for sole traders and landlords with combined income above £50,000, extends to those above £30,000 from April 2027, and to those above £20,000 from April 2028 [18]. Those in scope must keep digital records and send four quarterly updates plus a final declaration, which remains due by 31 January [5].
