How Much Tax Do You Pay If You're Self-Employed?
- MAZ
- Jul 11, 2023
- 23 min read
Updated: Sep 15
How Much Tax Do You Pay If You’re Self-Employed in the UK (2025/26)
What Exactly is the Definition of Self-employed Tax According to HMRC?
According to the HM Revenue and Customs (HMRC), self-employed tax refers to the income tax and National Insurance contributions that individuals who are self-employed are required to pay. Being self-employed means you work for yourself, not for an employer, and you run your own business. The income tax you pay is based on your business profits, not your total income, after deducting allowable business expenses. The tax rates are the same as for employed individuals, with a tax-free Personal Allowance, followed by a basic rate, a higher rate, and an additional rate for different income brackets.
In addition to income tax, self-employed individuals also pay Class 2 and Class 4 National Insurance contributions, which contribute to their entitlements to certain state benefits, including the State Pension. It's important to note that as a self-employed individual, you are responsible for keeping track of your income and expenses, completing a Self-Assessment tax return each year, and paying any tax and National Insurance due.
Core Rates, Allowances & What Really Matters
Picture this: you’ve just finished your bookkeeping for the year, looked at all your invoices and expenses, and now you want to know exactly how much tax you’ll hand over. If you’re self-employed, sole trader, contractor, or business owner (not a limited company owner for dividend/tax on profits differences), this is your moment of truth.
Here’s the short answer up front, based on the 2025/26 tax year:
● You pay income tax on your taxable profits (i.e. income minus allowable business expenses, less any other reliefs).
● You also pay National Insurance contributions (NICs) – specifically Class 4 (on profits) and optionally Class 2 (voluntary now, since mandatory Class 2 was abolished in April 2024) if you want to preserve some benefits.
● Your personal allowance (the amount of profits you can make before paying income tax) is £12,570 per year. MaPS+2House of Commons Library+2
● After that, income tax rates for England, Wales, Northern Ireland are:
Band | Profits/Labour income range (England, Wales, NI) | Rate |
£0 – £12,570 | Up to personal allowance | 0% MaPS+2GOV.UK+2 |
£12,571 – £50,270 | Basic rate | 20% MaPS+2House of Commons Library+2 |
£50,271 – £125,140 | Higher rate | 40% MaPS+1 |
Over £125,140 | Additional rate | 45% MaPS+1 |
●
● If you live in Scotland, income tax rates / bands are different. From April 2025 for 2025/26:
Band | Taxable Income (Scotland, relevant income) | Rate |
Up to £12,570 | Personal Allowance | 0% MaPS+1 |
£12,571 – £15,397 | Starter rate | |
£15,398 – £27,491 | Basic rate | |
£27,492 – £43,662 | Intermediate rate | |
£43,663 – £75,000 | Higher rate | |
£75,001 – £125,140 | Advanced rate | |
Over £125,140 | Top rate |
●
● On National Insurance (NICs) for the self-employed (2025/26), the rules are:
○ Class 4 NICs: 6% on profits between £12,570 and £50,270, then 2% on profits above £50,270. PwC Tax Summaries+1
○ Class 2 NICs: mandatory Class 2 abolished from April 2024. You can pay voluntary Class 2 (≈ £3.45/week) if you want to preserve certain NI-based benefits (e.g. state pension) and your profits are below a threshold. PwC Tax Summaries+1
● Personal Allowance reduction: if your adjusted net income exceeds £100,000, the
Personal Allowance is reduced by £1 for every £2 of income above that. Once income hits £125,140, the personal allowance is zero. House of Commons Library+2MaPS+2
Why These Numbers Matter — The Real-World Stakes
In my years advising clients in London, Leeds, Edinburgh etc.:
● I’ve seen freelancers assume “I’ll pay 20% because that’s the basic rate,” only to discover their profits pushed them partly into the higher rate, catching them off-guard with tax bills 40–60% higher on the excess.
● Contractors often forget that Class 4 NICs add a non-trivial extra on top of income tax (though they often budget only for the 20% rate).
● Scottish residents sometimes assume the same income bands as England/Wales — big mistake; the starter / intermediate bands affect marginal rates significantly.
What Many Overlook: Other Reliefs / Allowances
To fully know how much tax you pay, you must also consider:
● Expenses & allowable losses: your business expenses reduce taxable profits. Travel (business mileage), materials, office costs, professional subscriptions, etc. But be cautious: only “allowable” ones under HMRC rules. I’ve had clients who tried claiming disallowed car costs or private-element proportions and got penalised.
● Other income sources: side hustles, rental income, dividends, pension income, or employment income. These add together for income tax purposes (though taxed differently) and may push you into higher brackets, reduce your personal allowance.
● Pension contributions & Gift Aid: contributions to pension schemes reduce taxable income. If you pay into a pension, you might reduce your effective tax rate.
● Marriage Allowance / Blind Person’s Allowance / charitable contributions etc., when applicable.
Tables: Income Tax + NICs Combined (England/Wales/NI) for Self-Employed (2025/26)
Here’s a combined view so you can estimate total deductions (Income Tax + NICs) on profit slices. This is something I draw up for clients so they can see margins after tax & NI.
Profit Slice | Income Tax Rate | NICs (Class 4) Rate | Combined Marginal Rate* |
£0 – £12,570 | 0% | 0% | 0% |
£12,571 – £50,270 | 20% | 6% | ≈ 26% |
£50,271 – £125,140 | 40% | 2% + 6% on the lower slice | ≈ 42–44% on the portion just above £50,270 |
Over £125,140 | 45% | 2% | ≈ 47%+ depending on exact income |
*“Combined Marginal Rate” means how much extra tax + NICs you’ll pay on each additional pound you earn in that bracket, given you’re already above the thresholds.
So, if you make £60,000 profit in England:
● First £12,570 → no income tax, no NICs
● £12,571-£50,270 → taxed at ~26% combined
● Then £50,271-£60,000 → taxed at ~42% (40% income tax + 2% NIC)
You can run the numbers precisely using a spreadsheet or HMRC’s tools, but this table gives you the mindset.
What’s New / Changed for 2025/26 You Might Have Missed
Be careful: tax law isn’t static. From my recent client cases, here are updates to watch:
Personal Allowance Freeze: The Personal Allowance remains £12,570, and is fixed (no inflation uprate) until April 2028. So wage growth, price inflation may push more into higher rates (fiscal drag). House of Commons Library+2Growth Capital Ventures+2
NICs changes: Class 2 mandatory contributions abolished April 2024; but voluntary Class 2 remains. Many clients didn’t realise they could still opt in to protect their NI record. PwC Tax Summaries
Scottish thresholds for starter/basic/intermediate bands have been adjusted (inflation-linked uplift) from 6 April 2025. Higher/top bands largely unchanged. Scottish Government+1
Threshold where personal allowance tapers (over £100,000 income) and disappears (£125,140) are continuing. Some clients earning slightly over £100k underestimate how fast they lose the allowance — meaning extra income is taxed heavily. House of Commons Library+2Growth Capital Ventures+2
Tax Law Updates for 2025/26
Real-World Case Study: “Sarah the Graphic Designer, Manchester”
Here’s something I dealt with recently that shows how it works in practice:
● Sarah earns £70,000 from freelance graphic design across the year (after VAT, she’s not VAT registered yet, just her invoices).
● Her allowable business expenses are £10,000 (software licenses, travel, some home office, phone bills etc).
● So her profit before tax is £60,000.
What she pays:
Income tax in England:
○ First £12,570 → 0%
○ Next £37,700 (up to £50,270) → 20% = £7,540
○ Remaining £9,730 (i.e. £60,000 − £50,270) → 40% = £3,892
Total income tax = £11,432
NICs (Class 4):
○ On profits from £12,570 to £50,270: 6% of £37,700 = £2,262
○ On profits over £50,270: 2% of £9,730 = £195
Total NICs = £2,457
Total tax & NICs = £13,889
Effective rate on her profit of £60,000 = ≈23.1%
● If Sarah had side income (e.g. rental or part-time employment) bringing total income to, say, £90,000, she’d start losing personal allowance, making marginal rate on extra income even higher.
● Also, if Sarah were Scottish, some of her income (in certain profit bands) would be taxed at 19%, 20%, 21% rather than jumping straight from 20% to 40% as in England. That changes her tax bill by a few hundred to a few thousand pounds depending on how much falls into those Scottish bands.
UK Income Tax Calculator
Digging Deeper: How to Check, Calculate & Avoid Common Errors
Now that you know the rates and allowance basics, let’s move into how you verify what you owe (or might have overpaid), how to calculate precisely, and what traps to watch out for. In my 18+ years advising self-employed folks in London, Manchester, Glasgow etc., these are the steps that make all the difference.
Step-by-Step Guide: Verifying Your Tax & NIC Liability
These are the practical steps I walk through with clients to check their self-employed tax liability. You can follow along with your own numbers.
Step | What you do | Why it matters / What you’ll catch |
1. Gather all income sources | Collect your self-employment profits, any employment income (PAYE), rental income, dividends, pensions etc. Also side hustle income, even if small. | Because income from all these sources affects where you fall in tax bands and whether you lose Personal Allowance. |
2. List all allowable business expenses | Travel, materials, professional subscriptions, home office apportioned expenses, insurance, etc. Only allowable ones under HMRC rules. | Reduces profit; mis-claiming or forgetting reduces relief. Some clients overclaim private costs and get penalised. |
3. Determine your taxable profit | Profit = total incomes (self-employment etc.) minus allowable expenses, minus any reliefs (e.g. pension, gift aid). | This is the base on which income tax + NICs are computed. |
4. Apply Income Tax bands & Personal Allowance | Use HMRC’s income tax bands; if your adjusted net income exceeds £100,000, your Personal Allowance reduces. Use HMRC’s “Income Tax Rates and Personal Allowances” page. | Many clients don’t realise the tapering of Personal Allowance; as soon as you breach £100,000 it bites. |
5. Compute Self-Employed National Insurance (NICs) | You must pay Class 4 NICs if profits > £12,570. Rates: 6% on profits between £12,570-£50,270; 2% on profits over that. Also voluntary Class 2 NICs if you want to preserve benefit record. Use HMRC “Self-employed National Insurance rates” page. | Often underestimated; some assume NICs are fixed or negligible but they are not. |
6. Add up total tax + NICs; consider marginal rates | For each additional £ earned, see which band it falls into (income tax + NICs). This shows your marginal rate. | Helps with planning: e.g. whether doing more work, spending more, contributing to pension, making charitable donations etc. |
7. Review for other reliefs / credits | e.g. pension contributions, Gift Aid, Marriage Allowance, Blind Person’s Allowance, reliefs for losses, capital allowances if buying equipment etc. | These reduce liability. Some clients leave money on table because they don’t check. |
8. Check your Self Assessment & payments on account | Ensure self-assessment return is filed on time; if applicable, ensure payments on account are properly estimated & paid (31 July / 31 January). | Late filing or underestimating leads to penalties, interest. Many clients get caught by this, especially with side income. |
9. Consider location / devolved rates | If you live in Scotland, Scottish income tax bands apply. Wales has its rates for some bands. | Using England/Wales bands for a Scottish taxpayer leads to errors. |
10. Use HMRC’s tools & trustworthy worksheets | HMRC’s online calculators, your “Personal Tax Account”, check your NIC record, use GOV.UK’s “Rates and allowances” pages. | Confirms your numbers and often catches omissions. |
Key Official GOV.UK Pages to Bookmark & Use Often
Here are the essential pages that should be your go-to, regularly, when doing your tax planning or checking what you owe:
● Income Tax rates and Personal Allowances — HMRC: current bands, how personal allowance works.
● Self-employed National Insurance rates — HMRC: Class 2 / Class 4 thresholds and rates.
● Rates and allowances: National Insurance contributions (NI) — full breakdown of classes etc.
● What income tax you pay (MoneyHelper / HMRC) — matching income tax + NICs for self-employed.
Common Error Traps & Lessons from Real Cases
Be careful here, because I’ve seen clients trip up when:
Under-reporting side hustle income
E.g. Mary from Birmingham sold stuff on Etsy, didn’t report £2,000-£3,000 profit, thinking “it’s small”. But that pushed her total income into higher rate and triggered late filing penalties.
Losing Personal Allowance inadvertently
John in Edinburgh earned just over £100,000 combining freelance & part-time job. He didn’t budget for the taper: between £100,000–£125,140 income, the £12,570 allowance phases out. That marginal rate on that slice is effectively ~60% (tax + NICs + loss of allowance).
Misunderstanding Class 2 vs. Class 4 NICs
Since April 2024 mandatory Class 2 was abolished; some still think they must pay both. Many don’t realise Class 2 is now voluntary (but useful for NI record). Using the “Self-employed National Insurance rates” page helps avoid that.
Incorrect expense claims / private portion issues
Clients with home offices sometimes claim 100% of utilities; not allowed. Or mixing private and business travel. HMRC often challenges those. Keep detailed records.
Forgotten payments on account
If last year’s tax bill was over £1,000 (after deducting what was deducted at source), you’ll likely have to make payments on account (two instalments) for the current year. Missed this, and you get interest + penalties.
Assuming England/Wales rates when in Scotland
Scottish tax bands (starter / basic / intermediate / etc.) are different. Calculations must use the correct band. I had a client where using England bands underestimated tax by ~£1,200 in one year.
Checking Your Tax Code & PAYE Interaction
If you also have some income under PAYE (say part-time job) alongside self-employment:
● Check your PAYE tax code via your Personal Tax Account on GOV.UK. If your self-employment (or other income) is not declared properly, tax code might be set wrongly.
● The PAYE code assumes earnings and allowances; if you have self-employment profit you must declare via Self Assessment — PAYE alone won’t cover that.
● If too much tax was deducted via PAYE or via instalments, you could get an overpayment / refund after filing.
GOV.UK Tools to Use for Final Confirmation
● Personal Tax Account — where you can see your income, tax paid, tax code, allowances.
● Self Assessment online — submitting your return will calculate your income tax + NICs due.
● HMRC “Rates and allowances” pages (Income Tax & NICs) for 2025/26.
● HMRC NIC record — check that your National Insurance history is up to date (important for state pension etc.).
Advanced Self-Employed Tax Planning: Business Owners, Rare Situations & Key Takeaways
None of us loves tax surprises, but here’s where they often hide — in the messy corners of real life. If you’re self-employed with multiple income streams, or you’ve got special circumstances like receiving Child Benefit on a high income, or you’re juggling PAYE with self-employed profits, these are the scenarios that trip people up. I’ve guided many clients through these in the past few years, and the lessons are worth sharing.
Handling Multiple Income Sources Smoothly
Now, let’s think about your situation — what if you’re not just self-employed?
● Employment + Self-Employment Suppose you work three days a week on PAYE and also freelance. PAYE will tax your employment income, but it won’t automatically account for your freelance profits. You’ll need to declare all income on your Self Assessment return. If you don’t, you’ll underpay.
● Rental Income If you also rent out a flat, that rental profit gets added to your other income. It might push you into higher-rate tax even if your self-employment alone wouldn’t. One of my clients in Bristol had £35,000 freelance profit plus £20,000 rental profit. He thought he was only in the 20% band — but his total income was £55,000, so £4,730 of it fell into the 40% band.
● Dividends & Savings If you hold shares, dividend income has its own allowance (£500 in 2025/26) and separate tax rates, but it still stacks on top of your other income to determine which band applies. Same with savings interest (with a £1,000 or £500 savings allowance depending on your band).
● Cross-border Work Post-pandemic, remote working across borders is common. If you’re self-employed in the UK but have clients abroad, watch whether double-tax treaties apply. I’ve seen freelancers taxed twice because they didn’t claim treaty relief.
Case Study: Contractor Misinterpreting CIS Deductions
Take Ahmed, a self-employed builder in Birmingham working under the Construction Industry Scheme (CIS). Contractors deducted 20% CIS tax at source from his invoices. He assumed that was the final tax, so didn’t file his Self Assessment properly. HMRC chased him, because:
● CIS deductions are only advance payments towards income tax/NICs, not the final bill.
● His allowable expenses reduced his taxable profit, so he had actually overpaid. Filing properly would have secured him a refund.
Lesson: if you’re under CIS, always complete your Self Assessment. Otherwise you might leave thousands with HMRC.
High Income Child Benefit Charge (HICBC)
Be careful here, because I’ve seen clients trip up when both parents are working and one’s income creeps over £50,000.
● If your adjusted net income exceeds £50,000 and you or your partner receives Child Benefit, you may face the High Income Child Benefit Charge.
● Between £50,000 and £60,000, the charge is partial (1% for every £100 over £50,000). At £60,000 or more, the charge equals 100% of the Child Benefit received.
● Many families still claim Child Benefit for NI credits, but repay some/all of it via the charge.
I had a case where Emma, a consultant in Leeds, didn’t realise her freelance income pushed her over £50,000 once combined with her PAYE job. She faced a backdated bill of £2,000+, all avoidable had she checked.
Emergency Tax & Coding Errors
Picture this: you’re staring at your payslip for your part-time job and notice HMRC has slapped an “emergency tax code” on it. Suddenly your tax is way higher. If you’re self-employed on top, this can cause chaos:
● PAYE might be taking too much, but your Self Assessment may still show underpayment when total income is tallied.
● Always check your tax code in your Personal Tax Account. If it looks odd (codes like 1257L W1/M1), you may be on a non-cumulative emergency code. Request HMRC to fix it.
I’ve had clients overpay thousands simply because no one noticed the wrong code for months.
Business Owners: Sole Trader vs. Limited Company
For many self-employed, the big question is: should I stay a sole trader or form a limited company?
● Sole Trader Simple to set up, fewer admin costs, you pay income tax & Class 4 NICs as covered earlier. Works fine until profits climb high.
● Limited Company Profits taxed at Corporation Tax (currently 25% for most companies as of 2025/26), then you can pay yourself salary/dividends. Dividends have lower tax rates than income, so there can be savings. Example: Profits of £80,000. As a sole trader, most falls into 40% + NICs. As a company, profits face 25% Corporation Tax, and dividends may be taxed at 8.75%/33.75%/39.35% depending on band. Structuring can save thousands, but admin is higher.
● Practical Insight Many of my clients switched when profits went consistently over ~£50k–£60k. But it’s not one-size-fits-all — if you want simplicity and fewer admin burdens, staying sole trader may suit you.
Rare but Painful: Underpayments & HMRC Enquiries
In practice, the self-employed often get caught by:
● Forgetting to report benefits-in-kind (like company car if you also work part-time PAYE).
● Not adjusting for student loan repayments — HMRC will calculate this on top of your tax if applicable.
● Not declaring crypto income — HMRC has been ramping up enquiries into crypto traders, even small ones, since 2024.
● Random compliance checks — If figures look inconsistent year-on-year, HMRC may open an enquiry. Keep your receipts, logs, and records for at least 5 years after the 31 January submission deadline.
Pro Tips from the Field
● Keep a separate bank account for business income/expenses. Makes tax time far easier and supports your record keeping.
● Put aside ~25–30% of profits into a savings pot for tax/NICs, so you’re never caught short at payment deadlines.
● Use accounting software linked to HMRC’s Making Tax Digital system. Saves grief later.
● Check your NIC record annually. Missing contributions can reduce your state pension. Voluntary Class 2 can plug gaps cheaply.
If your income fluctuates, consider payments on account carefully. You can request HMRC to reduce them if you expect a lower year, but under-estimating risks interest.
How a Self-Employed Tax Accountant Can Help You Pay Your Self-Employed Tax?
Navigating the complexities of self-employed taxes can be a daunting task, especially for those new to self-employment. This is where a Self Employed Tax Accountant can be invaluable. They can help you understand your tax obligations, ensure you're paying the correct amount of tax, and even help you identify potential tax savings. This article explores how a Self Employed Tax Accountant can assist you in managing your self-employed tax.
Understanding Your Tax Obligations
One of the primary roles of a Self Employed Tax Accountant is to help you understand your tax obligations. This includes explaining the different types of taxes you need to pay as a self-employed individual, such as income tax, National Insurance contributions, and possibly VAT. They can also help you understand the various tax allowances and reliefs you may be entitled to, such as the Personal Allowance and the trading allowance.
Calculating Your Taxable Income
A Self Employed Tax Accountant can help you calculate your taxable income, which is the amount of income you need to pay tax on. This involves subtracting your allowable business expenses from your total income. Allowable expenses can include things like office costs, travel costs, clothing expenses, staff costs, and things you buy to sell on. An accountant can ensure you're claiming all the allowable expenses you're entitled to, which can help reduce your taxable income and, therefore, the amount of tax you need to pay.
Completing Your Self-Assessment Tax Return
Each year, you'll need to complete a Self-Assessment tax return. This is where you declare your income and expenses, calculate your tax, and find out how much you owe. A Self Employed Tax Accountant can complete this return on your behalf, ensuring it's accurate and submitted on time. This can save you a lot of time and stress, and help you avoid penalties for late or incorrect returns.
Paying Your Tax Bill
Once your Self-Assessment tax return is completed, you'll know how much tax you owe. Your tax bill is usually due by midnight on 31 January following the end of the tax year. A Self Employed Tax Accountant can help you understand your tax bill, ensure it's correct, and advise you on the best way to pay it. They can also help you budget for your tax bill throughout the year, so you're not faced with a large bill at the end of the year.
Planning for the Future
A Self Employed Tax Accountant can also help you plan for the future. This can include advising you on how to grow your business in a tax-efficient way, planning for your retirement, and helping you understand the tax implications of hiring employees. They can also keep you updated on any changes to tax laws and regulations that may affect you and your business.
Hiring a Self Employed Tax Accountant can be a wise investment for self-employed individuals. They can help you navigate the complexities of self-employed taxes, ensure you're paying the correct amount of tax, and even help you identify potential tax savings. While there is a cost involved in hiring an accountant, the time, stress, and potential money they can save you often make it a worthwhile investment. Remember, when it comes to taxes, it's always better to get it right the first time. A Self Employed Tax Accountant can help you do just that.
Summary of Key Points
You pay both income tax and Class 4 NICs on self-employment profits — Class 2 is now voluntary since April 2024.
Personal Allowance is £12,570 (frozen until 2028) — reduced if income exceeds £100,000.
Tax bands differ between England/Wales/NI and Scotland — don’t apply the wrong ones.
Total income counts — PAYE, rental, dividends, savings, and freelance all stack together for band calculations.
High Income Child Benefit Charge applies from £50,000 adjusted net income — up to 100% clawback at £60,000.
CIS deductions are advance payments, not the final bill — always file a Self Assessment to reclaim or top up.
Emergency tax codes can cause over/under-payments — check your Personal Tax Account regularly.
Limited company vs sole trader matters — tax savings possible with companies, but weigh admin costs.
Reliefs can reduce liability — pensions, Gift Aid, Marriage Allowance, and loss relief are often overlooked.
Plan cashflow — set aside 25–30% of profits for tax, and keep records for at least 5 years to withstand enquiries.
FAQs
Q1: Can someone change their tax code if it’s incorrect because of additional self-employment income?
A1: Yes — and you should, because having the wrong tax code when you have self-employment income plus PAYE can mean underpaying or overpaying. In my experience with clients who have a part-time job plus freelancing income, the employer often uses the standard code (e.g. 1257L) which assumes only the job. If your freelancing pushes your total income past a higher rate or phases down your Personal Allowance, you need to inform HMRC so your tax code is adjusted. You can do this via your Personal Tax Account. It’s worth also double-checking after major changes (new client, big invoice, income jump) so the code reflects your full income.
Q2: What happens if someone underestimates their income and ends up owing more in Self Assessment payments on account?
A2: When you submit your Self Assessment, if your last year’s liability was above the threshold requiring payments on account, HMRC expects two advance payments for the coming year (commonly by 31 January and 31 July). If you underestimate income, then your payments on account (calculated from your prior year) may be too low, leaving you with a catch-up bill after you file. In practice, I had a designer in Manchester who expected income similar to prior year, but landed a big contract. His payments on account were calculated too low, meaning a large sum due January plus penalties.
The fix: either estimate more conservatively, or formally ask HMRC to reduce your payments on account if you realistically expect lower profits — but only do that carefully, because if you reduce too much you’ll pay interest.
Q3: Does someone doing gig work (Uber, Deliveroo, etc.) need to pay the same self-employment tax/NICs as “traditional” freelancers?
A3: Generally yes — gig economy income is self-employment income if the person is not employed by the platform. That means the same rules on profits, allowable expenses, Self Assessment, and National Insurance. BUT there are nuances: many gig workers don’t realise they can claim vehicle costs, fuel, insurance, phone use etc (pro portionally) as expenses. I had a Deliveroo courier in Leeds who thought she couldn’t deduct any of her fuel costs — once we properly apportioned business vs private mileage, her tax bill dropped by nearly 15%. Also ensure the correct treatment of platform fees. And if the platform is deducting tax or treating you like an employee, check whether that’s right — misclassification happens.
Q4: Could someone lose their Personal Allowance because of having multiple jobs or incomes?
A4: Yes, losing Personal Allowance isn’t just about having one job – it’s about total adjusted net income. If someone has self-employment profits plus PAYE income (and/or rental or other income), adding together all income types may push them above £100,000. Once they exceed that threshold, the Personal Allowance begins to taper: you lose £1 of allowance for every £2 over £100,000. Eventually, over about £125,140, there’s no Personal Allowance. I once worked with a client in Edinburgh who didn’t think his gig income mattered; combined with his salary, it pushed him over £100,000, cost him the Personal Allowance, and significantly increased his marginal rate.
Q5: How does being tax resident or non-resident affect what a self-employed person pays?
A5: If someone is non-resident, only UK-source income is taxed in the UK (depending on double taxation treaties etc). For UK tax residents, worldwide income counts. I’ve seen expatriates and foreign contractors misunderstand this — they thought only UK business profits matter, but had some passive income abroad that needed declaration. The key is determining your residence status under UK law (days present, ties etc.). If non-resident but with UK self-employment, you still register and file for UK profits, but other rules/reliefs may differ. Always check HMRC’s residence tests.
Q6: What if someone has losses from their self-employment? How does that affect their tax?
A6: Losses are extremely useful but often mishandled. If your business expenses exceed income in a year, you can carry forward losses to offset against future profits (in the same trade). Sometimes you can even carry back losses (but that’s more limited). I worked with a photographer in Bristol whose equipment upgrades led to large losses year one; we carried them forward, which significantly reduced her tax burden when income recovered. Important: losses must be genuine, documented, and from a trade; hobby losses don’t count. Also watch that if you stop trading, losses in last years may have restrictions.
Q7: Can someone reclaim overpaid tax if they think HMRC taxed them too much due to emergency tax or wrong code?
A7: Yes. If you’ve been paying tax under an emergency tax code (or a wrong code), or you think PAYE deductions were too high (because self-employment wasn’t declared etc.), you can reclaim. I’ve handled many cases where someone changed job mid-year, was on code “W1”/“M1” etc, and later got several hundred pounds back via HMRC once correct income figures submitted. Use your P60s, payslips as proof. Also ensure that your Self Assessment includes all income so HMRC sees full picture. Overpayments are often fixed via coding or via tax calculation/assessment.
Q8: How does Scottish tax variation affect a self-employed person living in Scotland?
A8: Scotland sets its own income tax bands above the personal allowance, so rates and band thresholds differ. If you’re self-employed and resident in Scotland, you need to use Scottish rates for the portion of income taxed by income tax (not NICs). I had a web developer based in Edinburgh who estimated using England rates, only to find when filing that the “starter”, “intermediate”, “higher” bands applied differently — costing a few hundred more tax. So always check your address/Town of residence for correct rates. HMRC / Scottish Government websites have updated band tables.
Q9: If someone starts self-employment mid-year, do they get a full year’s Personal Allowance?
A9: Yes — the Personal Allowance applies pro rata only in terms of how much income you have. It isn’t reduced because you started mid-year. You still benefit up to £12,570 (for 2025/26) of total income, across all sources. What changes is that your pro rata profits may be smaller, so often you’d stay within allowances. I saw a consultant in Bristol start freelancing in November; because his total self-employment profit + PAYE income stayed under thresholds, he didn’t owe income tax until next bracket despite only working part of the year.
Q10: Are pension contributions still useful for reducing tax for high-earning self-employed people?
A10: Absolutely. Pension contributions are one of the key tools to reduce taxable income. For someone with large profits, contributing into a pension scheme (assuming you’re eligible) reduces adjusted net income, which can also preserve Personal Allowance and lower your marginal tax/NICs burden. In practice I’ve seen contractors in London use pension contributions to just get below the £100,000 allowance taper threshold — saving several thousand. Just ensure you understand annual pension contribution limits (and carry forward rules) so you don’t get caught by contribution caps.
Q11: What are typical mistakes people make with claiming business expenses in mixed home/office use situations?
A11: That’s a classic trap. Many self-employed assume they can claim 100% of utilities, internet, rent, etc., when only part is business. I had a client in Sheffield who allocated his home broadband 100% (because “I work from home all day”), but HMRC expects a fair apportionment for private vs business use. Same with heating, electricity, phone. Keep detailed logs: hours, rooms used etc. Also keep receipts. Claim “wholly and exclusively for trade” only what meets that test. Overclaiming invites enquiry and penalties.
Q12: If someone earns just below the threshold where they must file Self Assessment, do they need to register anyway?
A12: If you have self-employment income above £1,000 (after deductions) in a tax year, you need to register for Self Assessment. Even if profit is small, registration is required because HMRC needs to get tax & NICs sorted. If profits are below that, you might use the trading allowance. I’ve had clients avoid registering because they thought “it’s minor income” — but when HMRC eventually catches up, penalties for late registration can outweigh the tax due. So register proactively.
Q13: Can someone with mixed income (PAYE + dividends + self employment) get pushed into unexpected higher tax rates?
A13: Yes. All taxable income (excluding some specific allowances) adds up to determine which rates apply. Dividends have different tax rates, but they still count towards total income for determining whether basic/higher/additional rate thresholds are crossed. I had a small business owner in Cardiff who took small dividends, plus freelancing, plus salary via company — she thought dividends would be lightly taxed, but once total income crossed higher rate, dividends above threshold got taxed at higher dividend rates. The surprise is often here: knowing not just what rate applies to each stream, but where it pushes you overall.
Q14: What if someone stops being self-employed during the year — how is tax calculated then?
A14: If you cease self-employment mid-year, you still need to account for all profits earned up to the stop date, file a Self Assessment, and pay tax/NICs accordingly. The tax year runs from 6 April to 5 April, so whether you stopped in October, December etc, you sum your profits for that part. Sometimes people assume stopping means immediate relief — but tax bands still apply on total income for that tax year. Also, if losses in final part of trade exist, they might be usable, depending on whether trade fully ends. Always tell HMRC when you stop trading, and keep records for rest of year in case of late expenses/invoices.
Q15: Can voluntary Class 2 National Insurance contributions help someone with gaps in their NIC record?
A15: Indeed. Even though mandatory Class 2 was abolished for many, voluntary Class 2 contributions remain an option for filling gaps in your National Insurance record, which matter for State Pension and some benefits. In my rural client base, some people had years with low profits or none at all; paying voluntary Class 2 for those years can protect their entitlement. However, weigh cost vs benefit: if the gap is small or they already have enough qualifying years, it might not be worth the weekly cost. Also, you must opt in; HMRC doesn’t force it.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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