How to Calculate Your Self-Employed Tax (Step-by-Step)
Calculating your self-employed tax does not require an accountant or expensive software. Once you understand the steps, you can work out your bill yourself, and more importantly, understand exactly where each number comes from. This guide walks you through the full calculation using 2025/26 HMRC rates.
What you need before you start
Before you calculate anything, you need two figures:
- Total income — everything you earned from self-employment in the tax year (6 April to 5 April)
- Total allowable expenses — legitimate business costs you can deduct
If you have been tracking your income and expenses throughout the year, you already have these. If not, go through your bank statements and invoices to pull the figures together.
Step 1: Calculate your taxable profit
Taxable profit = Total income − Allowable expenses
This is the number everything else is based on. The lower your taxable profit, the lower your tax bill.
Example:
- Total income: £48,000
- Allowable expenses: £6,500
- Taxable profit: £41,500
Allowable expenses include things like office costs, travel, marketing, professional fees, equipment, and a proportion of home costs if you work from home. HMRC's rule is that an expense must be wholly and exclusively for business purposes.
Step 2: Calculate your Income Tax
Income Tax is calculated on your taxable profit after deducting your Personal Allowance.
2025/26 Personal Allowance: £12,570
If your profit is above £100,000, your Personal Allowance reduces by £1 for every £2 above that threshold.
After deducting your Personal Allowance, apply the tax bands to the remaining amount:
| Band | Rate | Threshold |
|---|---|---|
| Basic Rate | 20% | £12,571 – £50,270 |
| Higher Rate | 40% | £50,271 – £125,140 |
| Additional Rate | 45% | Above £125,140 |
Continuing our example (£41,500 taxable profit):
- Personal Allowance: £12,570 at 0% = £0
- Remaining taxable income: £41,500 − £12,570 = £28,930
- Basic Rate: £28,930 at 20% = £5,786
Income Tax due: £5,786
If you live in Scotland, use the Scottish rates instead, six bands from 19% to 48% set by the Scottish Parliament.
Step 3: Calculate Class 2 National Insurance
Class 2 NI is a flat weekly charge if your profits exceed the Small Profits Threshold.
- Small Profits Threshold: £6,725
- Rate: £3.65 per week = £189.80 per year
If your profit is below £6,725, you do not owe Class 2 NI, though you can pay it voluntarily to protect your State Pension entitlement.
Our example (£41,500 profit — above threshold):Class 2 NI due: £189.80
Step 4: Calculate Class 4 National Insurance
Class 4 NI is percentage-based and applied to your profit above the Lower Profits Limit.
| Band | Rate | Threshold |
|---|---|---|
| Main Rate | 6% | £12,570 – £50,270 |
| Upper Rate | 2% | Above £50,270 |
Our example (£41,500 profit):
- £41,500 − £12,570 = £28,930 in the main band
- £28,930 at 6% = £1,735.80
- Nothing above £50,270
Class 4 NI due: £1,735.80
Step 5: Add it all together
| Tax | Amount |
|---|---|
| Income Tax | £5,786.00 |
| Class 2 NI | £189.80 |
| Class 4 NI | £1,735.80 |
| Total due | £7,711.60 |
Take home from £41,500 profit: £33,788.40Effective tax rate: 18.6%
Step 6: Check for payments on account
If your total bill exceeds £1,000, HMRC will require payments on account for the following tax year. Each payment is 50% of your current bill, due on 31 January and 31 July.
In our example, payments on account would be £3,855.80 each, so the January payment includes both the current year balance (£7,711.60) and the first payment on account (£3,855.80), totalling £11,567.40.
This is why planning matters. If you know your bill will exceed £1,000, factor in payments on account from the start.
Use a calculator instead
If you would rather not work through the steps manually, our self-employed tax calculator does everything above instantly. Enter your income, expenses, tax year, and location, it shows your full breakdown, including Income Tax by band, Class 2 and Class 4 NI, take-home pay, effective rate, and how much to set aside weekly and monthly. You can also download the result as a PDF.
Frequently Asked Questions
Do I calculate tax on income or profit?
Profit, always. Your taxable profit is your total income minus your allowable business expenses. Never calculate tax on your gross income unless you have no expenses at all.
What if I made a loss?
If your allowable expenses exceed your income, you have made a loss. You can carry that loss forward and offset it against future profits, which reduces your tax bill in a future year.
What if I also have employment income?
Add your self-employment profit to your employment income to get your total income for the year. Income Tax is calculated on the combined figure. Your PAYE tax code accounts for tax already deducted through your employer, so you only pay the difference through Self Assessment.
How do I pay my Self Assessment bill?
Online via your HMRC online account using bank transfer, debit card, or Direct Debit. The deadline is 31 January, pay early to avoid any processing delays.
Can I reduce my bill before the deadline?
Yes, making a pension contribution before 5 April reduces your taxable profit for that tax year. It is one of the most effective last-minute ways to reduce a bill legally.
This article is for informational purposes only and does not constitute tax advice. Figures are based on 2025/26 HMRC rates for England, Wales and Northern Ireland. Scottish rates differ. Always consult a qualified accountant for advice specific to your circumstances.
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