Self-Employed Tax Calculator

How self-employed tax works in the UK

Employed vs self-employed: the key difference

When you are employed, your employer deducts income tax and National Insurance automatically through PAYE before you are paid. As a self-employed sole trader, you are responsible for calculating and paying your own tax via Self Assessment. There is no automatic deduction — which means you need to set money aside throughout the year and file a tax return each January.

Self-employed people also pay a different class of National Insurance. Employees pay Class 1 NI; self-employed people pay Class 4 NI on their profits. Class 4 rates are generally lower than Class 1 (6% and 2% vs the employed 8% and 2%), but you also miss out on employer NI contributions, which are never paid on your behalf.

What is Class 4 NI?

Class 4 National Insurance is paid by self-employed people on their taxable profits. For 2026/27, the rates are 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. The lower threshold matches the income tax personal allowance, so in practice you start paying Class 4 NI at the same point you start paying income tax. Unlike income tax, Class 4 NI does not build up State Pension entitlement — it is simply a contribution to the tax take.

Class 2 NI — now effectively abolished

Class 2 NI was a flat weekly charge (£3.45/week in 2026/27) that self-employed people used to pay. From 2024/25, Class 2 NI was abolished for anyone with profits above the Small Profits Threshold (£6,725). If your profits exceed this level, you automatically receive NI credits and your State Pension record is protected at no cost. If your profits are below £6,725, you can pay Class 2 voluntarily (£179.40/year) to protect your State Pension record — a useful low-cost way to build qualifying years if you are just starting out or have a quiet year.

Payment on Account explained

Self Assessment does not just mean paying a single bill in January. HMRC also requires you to make advance payments — called Payments on Account — towards the next year's tax bill. In your first year of Self Assessment, you pay your tax bill plus 50% of it as a first Payment on Account for next year, all on 31 January. A second Payment on Account of another 50% is due on 31 July. At the following 31 January, you pay any balancing payment (the difference between your actual bill and the two payments already made) plus the first Payment on Account for the year after that.

This catch-up structure means that in your first year of self-employment, you can face a bill of up to 150% of your annual tax liability in one go. Planning for this by setting money aside monthly from day one avoids a painful cash-flow shock.

Pension contributions as a tax planning tool

Contributing to a personal pension (such as a SIPP — Self-Invested Personal Pension) reduces your taxable profit, which in turn reduces both income tax and Class 4 NI. For a basic-rate taxpayer, every £100 of pension contribution costs just £80 in cash — the 20% income tax relief means the government tops it up to £100 in the pension. Higher-rate taxpayers (profit above £50,270) can claim an additional 20% relief via Self Assessment, bringing the effective cost of a £100 contribution down to just £60. Contributions can also bring your taxable profit below the £50,270 threshold, avoiding the higher rate altogether.

The annual pension allowance is £60,000 (or 100% of relevant earnings if lower), so most self-employed people have substantial headroom for pension contributions before reaching the limit.

Registering for Self Assessment

If you become self-employed, you must register with HMRC for Self Assessment by 5 October following the end of your first tax year in which you were self-employed. For example, if you started trading in the 2026/27 tax year (which ends 5 April 2027), you must register by 5 October 2027. Failure to register on time can result in a penalty equal to 30% of the unpaid tax. Registering is straightforward — you can do it online at gov.uk — and once registered, you will receive a Unique Taxpayer Reference (UTR) number which you will need for all future returns.

The "set aside 30%" rule of thumb

A popular rule of thumb for self-employed people is to set aside around 30% of every payment you receive into a dedicated tax savings account. For most basic-rate sole traders this is more than enough to cover income tax and Class 4 NI. Higher earners (above £50,270 profit) should set aside closer to 40–45%. The actual percentage you need depends on your specific profit level, pension contributions and any other deductions — which is exactly what this calculator helps you work out. Use the "set aside per month" figure in the Payment on Account section as your target.