UK tax rates, thresholds and allowances for the self-employed

Start with the personal allowance, then the bands

Most self-employed people still build their bill from the personal allowance and the Income Tax bands that apply to the tax year. Those figures are frozen for several years at a time, so the number you used last January may still be right — but you should confirm the current bands on GOV.UK before you complete the return.

Your taxable profit is turnover minus allowable expenses, capital allowances and any reliefs that actually apply to you. Trading losses, pension contributions and Gift Aid can all change the picture. Solaratax prepares this calculation as part of Self Assessment, rather than leaving you to stitch figures from a spreadsheet.

Directors who also take a salary and dividends sit in a different mix. The same personal allowance is used once across employment, self-employment and other income. That is why a side trade on top of PAYE often produces a larger bill than people expect.

National Insurance is a second calculation

Class 4 National Insurance is charged on profits between published lower and upper limits. Class 2 is now usually collected through Self Assessment when profits exceed the small profits threshold. Neither is the same as employee National Insurance deducted through PAYE.

If you also have a job, you may already have paid employee National Insurance. That does not cancel Class 4 on the trade, though high combined earnings can engage the annual maximum rules. We check this when a client has both employment and a freelance trade.

• Keep a running profit figure, not just a bank balance.
• Separate drawings from expenses so the accounts stay clean.
• Payments on account for the following year are often the surprise, not the current-year tax.

VAT sits on turnover, not profit

The VAT registration threshold is a turnover test. You can be loss-making and still need to register if taxable supplies go over the limit. You can also choose voluntary registration if reclaiming input VAT is worth the extra filing.

Making Tax Digital for VAT already applies to VAT-registered businesses. Making Tax Digital for Income Tax is a separate programme for qualifying sole traders and landlords. Confirm the latest start dates and turnover tests on GOV.UK — they have moved before.

What to do before 31 January

Register for Self Assessment if you have not already, gather bank records and invoices, and set aside cash for tax plus payments on account. If you cannot pay in full, HMRC Time to Pay is easier to agree before the deadline than after a penalty has landed.

Rates change. Treat this page as a map, not a substitute for the GOV.UK tables or a personal computation. Speak to Solaratax if you want the 2026 return prepared and the January payment planned.

Questions we are asked

Do self-employed people pay Corporation Tax?

No. Sole traders and partners pay Income Tax and National Insurance on profits. Corporation Tax applies to limited companies. If you are unsure which you are, start with our guide to sole trader versus limited company.

Where should I check the current rates?

Use the Income Tax rates and allowances pages on GOV.UK for the tax year you are filing. Do not rely on a blog, including this one, as the last word after a Budget.

Can Solaratax prepare the return from my records?

Yes. Send bank statements, invoices and a note of what you took as drawings. We complete the Self Assessment, explain the bill and file after you approve it.