Question 1

What taxes do self-employed people pay?

Accepted Answer

Sole traders and freelancers pay three main taxes: income tax on profits above the personal allowance (£12,570 for 2026/27), Class 2 National Insurance (a flat £3.45/week if profits exceed £6,725), and Class 4 NI (6% on profits between £12,570 and £50,270, then 2% above that). These are all reported and paid through Self Assessment.

Question 2

What is Class 2 National Insurance?

Accepted Answer

Class 2 NI is a flat-rate weekly contribution paid by self-employed people. For 2026/27 it is £3.45 per week (£179.40 per year). It is only due if your profits exceed the Small Profits Threshold of £6,725. Class 2 contributions count towards your entitlement to the State Pension and some contributory benefits, so paying them voluntarily even if profits are below the threshold may be worthwhile.

Question 3

What is Class 4 National Insurance?

Accepted Answer

Class 4 NI is a percentage-based contribution charged on self-employed profits. For 2026/27 the rate is 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Unlike Class 2, Class 4 contributions do not count towards State Pension entitlement. They are paid alongside income tax via Self Assessment.

Question 4

What expenses can I deduct from my self-employed income?

Accepted Answer

You can deduct allowable business expenses from your gross income to calculate your taxable profit. These include: office costs, travel and vehicle expenses (actual costs or flat-rate mileage), stock and materials, marketing and advertising, professional fees, bank charges, business insurance, and a proportion of home working costs. Capital items (equipment, computers) are handled through the Annual Investment Allowance rather than direct deduction.

Question 5

When do I need to submit a Self Assessment tax return?

Accepted Answer

You must register for Self Assessment and file a return if you are self-employed and earn more than £1,000 from self-employment (the trading allowance). The deadline for online returns is 31 January following the end of the tax year. You must also pay any tax owed by 31 January, with a second payment on account due on 31 July if your bill exceeds £1,000.

Question 6

Can I reduce my tax bill with a pension contribution?

Accepted Answer

Yes. Self-employed people can contribute to a personal pension (SIPP or stakeholder pension). Contributions receive basic-rate tax relief at source, and higher or additional-rate taxpayers can claim further relief through Self Assessment. Pension contributions also reduce your adjusted net income, which can preserve your personal allowance if income is between £100,000 and £125,140.

Band	Taxable Profit	Rate	Tax
Basic rate (20%)	£22,430	20%	£4,486
Total income tax			£4,486

Band	Profit in Band	Rate	NI
Class 4 main rate (6%)	£22,430	6%	£1,346
Total Class 4 NI			£1,346

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