UK Self-Assessment Tax: The Sole Trader’s Guide

If you’re self-employed in the UK, HMRC expects a Self-Assessment return each year. Here’s how Income Tax, National Insurance, deadlines and payments on account actually work for 2026/27.

Going self-employed in the UK is liberating until the first January tax bill lands. Unlike an employee on PAYE, nobody deducts tax from your invoices — you keep the gross, then settle up with HMRC once a year through Self-Assessment. That means the discipline of setting money aside is on you. This guide walks you through exactly what a sole trader owes, when it’s due, and how to avoid the two most common shocks: payments on account, and forgetting that National Insurance stacks on top of Income Tax.

Throughout, we use the published 2025/26 thresholds (the tax year running 6 April 2025 to 5 April 2026), which is the return most freelancers will be filing by 31 January 2027. Many of these figures — the £12,570 Personal Allowance and the £50,270 higher-rate threshold — have been frozen until April 2028, so they should still apply for 2026/27, but always confirm the current year’s numbers on GOV.UK before you file.

Who has to file a Self-Assessment return?

You almost certainly need to register and file if any of the following applied in the tax year:

• You were a sole trader and earned more than £1,000 in self-employment income (before expenses) — the £1,000 trading allowance.
• You were a partner in a business partnership.
• You had untaxed income — rental income, dividends above the £500 allowance, foreign income, or significant savings interest.
• Your total income was over £150,000, or you (or your partner) received Child Benefit and one of you earned over £60,000 (the High Income Child Benefit Charge).

If your freelance income is genuinely below £1,000 a year, the trading allowance means you may not need to file at all. Above that, registration is the first step — and there’s a deadline for it (see below).

How much tax do I pay as a sole trader?

The headline you need to internalise: as a sole trader you are taxed on your profit (income minus allowable expenses), not your turnover. That profit is hit by two separate charges — Income Tax and Class 4 National Insurance — and people routinely forget the second one.

Income Tax bands (England, Wales & Northern Ireland, 2025/26)

Scotland has its own income tax bands (with starter, basic, intermediate, higher, advanced and top rates) for non-savings income — if you live in Scotland, check the Scottish rates separately. The Personal Allowance also tapers away by £1 for every £2 you earn over £100,000, disappearing entirely at £125,140, which creates an effective 60% marginal rate in that band.

National Insurance for the self-employed

Two things changed recently and confuse a lot of people:

• Class 2 National Insurance — the old flat weekly charge — was effectively abolished from 6 April 2024. If your profits are above £12,570 you’re treated as having paid it, so your State Pension record keeps building with no extra cost. If your profits are below the small-profits threshold (£6,725), you can still pay Class 2 voluntarily (around £3.45/week in 2024/25) to protect your record.
• Class 4 National Insurance is the profit-based charge that matters now: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. It’s calculated automatically on your return and paid alongside your Income Tax.

A worked example

Say you’re a freelance designer with £45,000 of profit for 2025/26:

That’s an effective rate of about 18.7% on £45,000 of profit — but note that in the basic-rate band each extra pound of profit costs 26p (20% + 6%), so you keep roughly 74p. Above £50,270 the marginal cost jumps to 42p in the pound. A safe habit is to move 25–30% of every payment into a separate “tax pot” the moment it arrives.

The deadlines that actually matter

Missing a Self-Assessment deadline triggers an automatic £100 penalty even if you owe nothing, plus escalating daily penalties and interest after that. Here are the dates for the 2025/26 tax year:

Payments on account — the surprise January bill

This is where most first-time filers get caught out. If your tax bill is over £1,000 and less than 80% of your tax is already collected at source, HMRC asks you to pay towards next year’s bill in advance, in two instalments each equal to 50% of this year’s liability.

Using the designer above (£8,431.80 due), the first January after their debut return looks like this:

• Balancing payment for 2025/26: £8,431.80
• First payment on account for 2026/27 (50%): £4,215.90
• Total due 31 January 2027: £12,647.70

Then a second £4,215.90 falls due on 31 July. So in your first full year you effectively pay 150% of your bill. It evens out in later years, but it’s brutal if you didn’t expect it. If you know next year’s profit will be lower, you can apply to reduce your payments on account — but if you under-estimate, HMRC charges interest on the shortfall.

Allowable expenses that cut your bill

Every legitimate business cost you deduct reduces taxable profit, which reduces both Income Tax and Class 4 NI. Common allowable expenses for sole traders include:

• Office costs, software subscriptions, professional insurance and bank/payment fees.
• A proportion of home running costs (use the simplified flat-rate scheme by hours worked, or apportion bills by room/usage).
• Travel, accommodation and mileage for business journeys — the approved mileage rate is 45p/mile for the first 10,000 business miles, then 25p (cars).
• Equipment and tools, often claimed via the Annual Investment Allowance.
• Training that maintains existing skills, accountancy fees, marketing and a share of your phone/internet.

Keep digital records and receipts for at least five years after the 31 January filing deadline. Under Making Tax Digital for Income Tax, sole traders and landlords with qualifying income over £50,000 are required to keep digital records and send quarterly updates from April 2026, with the £30,000 threshold following in April 2027 — so getting on bookkeeping software now is sensible.

VAT: a separate system to watch

VAT is not part of Self-Assessment, but it sneaks up on growing freelancers. You must register once your VAT-taxable turnover passes £90,000 in any rolling 12-month window (or you expect to within 30 days). Once registered you charge 20% VAT on most invoices, reclaim VAT on purchases, and file quarterly VAT returns digitally. Some freelancers register voluntarily to reclaim input VAT or look more established — run the numbers before you do.

A simple filing checklist

1. Register with HMRC and get your Unique Taxpayer Reference (UTR) — do this early; the code can take days to arrive by post.
2. Add up your income and total your allowable expenses to find your profit.
3. Gather other income: employment (P60/P45), interest, dividends, rental.
4. File online via your Government Gateway account well before 31 January.
5. Pay the balancing payment and any payment on account — set up a budget payment plan if cash flow is tight.
6. Move 25–30% of each invoice into a tax pot all year so January never hurts.

This is general information for the 2026/27 tax year, not tax or financial advice — thresholds change and your situation may differ, so confirm current figures with a qualified accountant or HMRC (gov.uk) before filing.