Understanding UK self-employed tax
If you are self-employed in the UK, you pay tax on your profits through Self Assessment. Unlike employees who have PAYE deducted automatically, you are responsible for calculating and paying your own tax to HMRC.
The three taxes you pay
- Income Tax: Charged on your taxable profit (after allowable expenses) at progressive rates. Everyone gets a £12,570 Personal Allowance for 2024/25, meaning you pay 0% on the first £12,570.
- Class 2 National Insurance: A flat weekly rate (£3.45/week for 2024/25) paid if your profits exceed £12,570. Contributes to your State Pension entitlement.
- Class 4 National Insurance: Charged on profits between £12,570 and £50,270 at 6%, plus 2% on profits above £50,270 for 2024/25.
Important dates
- 5 April: Tax year ends
- 31 October: Paper Self Assessment deadline
- 31 January: Online Self Assessment deadline and payment due for previous tax year, plus first Payment on Account
- 31 July: Second Payment on Account due
See HMRC Self Assessment guidance for full details.
UK tax rates for 2024/25
These are the current rates published by HMRC for the 2024/25 tax year (6 April 2024 to 5 April 2025).
Income Tax bands
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Note: The Personal Allowance reduces by £1 for every £2 of income above £100,000, reaching zero at £125,140.
National Insurance rates
| Class | Rate | When you pay |
|---|---|---|
| Class 2 | £3.45/week (£179.40/year) | Profits over £12,570 |
| Class 4 (main rate) | 6% | Profits £12,570 - £50,270 |
| Class 4 (upper rate) | 2% | Profits over £50,270 |
Example calculation
If your self-employed profit is £40,000:
- Income Tax: £0 on first £12,570 + 20% on £27,430 = £5,486
- Class 2 NI: £179.40 (full year)
- Class 4 NI: 6% on £27,430 = £1,645.80
- Total tax due: £7,311.20
- Take-home: £32,688.80 (81.7% of profit)
Allowable business expenses
You pay tax on your profit, not your total income. Profit = Income minus Allowable Expenses. The more legitimate business expenses you claim, the lower your tax bill.
Common allowable expenses
According to HMRC guidance on allowable expenses:
- Office costs: Stationery, phone bills, computer software
- Travel: Vehicle running costs, train/bus fares, hotel rooms for business trips (45p per mile for first 10,000 miles, then 25p)
- Clothing: Uniforms or protective clothing (not everyday clothes)
- Staff costs: Salaries, subcontractor costs, employer's NI
- Stock and materials: Raw materials, stock purchased for resale
- Financial costs: Bank charges, interest on business loans, hire purchase interest
- Premises costs: Rent, business rates, utilities, insurance
- Marketing: Advertising, website costs, free samples
- Professional fees: Accountant fees, solicitor fees, professional body subscriptions
Working from home
If you work from home, you can claim a proportion of household costs (heating, electricity, internet, Council Tax, mortgage interest/rent). HMRC provides simplified flat rates:
| Hours worked per month | Flat rate allowance |
|---|---|
| 25-50 hours | £10/month |
| 51-100 hours | £18/month |
| 101+ hours | £26/month |
Alternatively, calculate the actual proportion of costs based on the rooms/hours used for business.
Payment on Account explained
Once your Self Assessment bill exceeds £1,000, HMRC requires you to make Payments on Account for the following year. This catches many freelancers off guard in their first profitable year.
How it works
Payments on Account are advance payments toward next year's tax bill, calculated as 50% of your current year's bill. You pay them on 31 January and 31 July.
Example
Your 2023/24 tax bill is £6,000 (due 31 January 2025). You also pay:
- £3,000 first Payment on Account (31 January 2025)
- £3,000 second Payment on Account (31 July 2025)
Total due 31 January 2025: £9,000 (previous year's bill plus first advance).
When you file your 2024/25 return, HMRC calculates what you actually owe and credits your Payments on Account. If your actual bill is lower, you get a refund. If higher, you pay the balance.
Reducing Payments on Account
If you expect next year's income to drop significantly (lost a major client, taking time off), you can apply to reduce your Payments on Account through your online HMRC account using form SA303. Be accurate. Underestimate and you will owe interest on the shortfall.
First year planning
In your first year of self-employment, budget for 1.5x your estimated tax bill to cover both the year-end liability and the first Payment on Account. This prevents the January cash flow shock that catches many new freelancers.
