What is Class 2 and Class 4 National Insurance?

Class 4 is a percentage of profit: 6% between £12,570 and £50,270 for 2026/27, then 2% on anything above. Class 2 used to be a flat weekly charge, but since profits above the £7,105 Small Profits Threshold are now treated as having paid it, most self-employed people pay no Class 2 at all. It's only voluntary if your profit is below £7,105 and you want to protect your state pension record. The rate if you do pay it is £3.65 a week.

What is payment on account?

Payment on account is an advance payment toward next year's tax bill. HMRC asks for 50% of your current year's tax by 31 January and another 50% by 31 July. So in your first full year you pay roughly 150% of one year's tax at once. It evens out after that because you've already paid ahead.

Do I need to register as self-employed?

Yes, if your self-employed income passes £1,000 in a tax year you must register with HMRC. Register by 5 October after the end of the tax year in which you started. Below £1,000 the trading allowance covers you and no registration or return is needed.

Self-employed tax calculator 2026/27

Income Tax + Class 2 + Class 4 NI calculated
Payment on account estimation
Expenses deduction modelling
Compare to employed take-home
No sign-up required

Updated August 2026 · HMRC 2026/27 rates

Self-employed tax calculator 2026/27

Enter your income and expenses to see your Income Tax, National Insurance and take-home for the 2026/27 tax year.

Annual turnover/income before expenses

Business expenses allowable costs

Total tax bill

£6,352

On a taxable profit of £37,000, that's a 17.2% effective rate.

Taxable profit

£37,000

Income Tax

£4,886

National Insurance

£1,466

Take-home

£30,648

Income	£45,000
Less business expenses	−£8,000
Taxable profit	£37,000
Income Tax	−£4,886
Class 4 National Insurance	−£1,466
Take-home after tax	£30,648

This calculator covers Income Tax, Class 2 and Class 4 National Insurance for a single self-employment source, plus your payment on account estimate. Want to see how that compares to being employed on the same income? Check salarychecker.uk for employed take-home.

Figures use HMRC 2026/27 rates for England, Wales and Northern Ireland. Estimates only, not financial advice. Source: gov.uk working for yourself.

Self-employed tax: how it works

When you're self-employed, you pay Income Tax on your profits (not your turnover) using the same bands as employed people. National Insurance works differently to employment. There are two classes, Class 2 and Class 4, but for 2026/27 Class 2 is treated as paid once your profit passes £7,105, so in practice most sole traders only pay Class 4.

The rates for 2026/27:

Tax/NI type	Rate	Threshold
Income Tax (basic)	20%	£12,571 to £50,270
Income Tax (higher)	40%	£50,271 to £125,140
Income Tax (additional)	45%	Over £125,140
Class 4 NI (main)	6%	£12,570 to £50,270
Class 4 NI (upper)	2%	Over £50,270
Class 2 NI	£0 payable (treated as paid); £3.65/week if voluntary	Profits over £7,105

Calculating your taxable profit

Your taxable profit is your total income minus allowable business expenses. If you invoice £45,000 in a year and spend £8,000 on legitimate business expenses, your taxable profit is £37,000. You only pay tax on the £37,000.

Allowable expenses include anything "wholly and exclusively" for business purposes: equipment, software subscriptions, travel to client sites, professional insurance, accountancy fees, a proportion of home office costs, phone bills, and business-related training.

Worked example: £45,000 turnover, £8,000 expenses

Taxable profit: £37,000. Here's the full breakdown:

Component	Calculation	Amount
Income Tax	(£37,000 - £12,570) × 20%	£4,886
Class 4 NI	(£37,000 - £12,570) × 6%	£1,466
Class 2 NI	Treated as paid above £7,105	£0
Total tax bill		£6,352

Your take-home after tax: £37,000 - £6,352 = £30,648. Effective tax rate: 17.2% of your profit. Compare that to an employee earning £37,000 who'd take home about £30,160 after Income Tax and employee NI. The self-employed person keeps a little more, mainly because Class 4 NI at 6% is lower than employee NI at 8%, but they also have to cover their own pension, sick pay, and holiday. See our employed vs self-employed comparison for the full picture.

Payment on account: the January shock

This is where most new freelancers get caught out. HMRC doesn't just ask you to pay this year's tax. They also ask for 50% of next year's estimated tax in advance. These are called "payments on account".

Using our example above, your first January tax bill would be:

Full year's tax: £6,352
First payment on account (50% of this year's bill): £3,176
Total due 31 January: £9,528

Then on 31 July, you'll pay the second payment on account: another £3,176. So in your first full year of freelancing, you effectively pay 18 months of tax in 12 months. It evens out in subsequent years (because you've already paid most of the current year in advance), but that first January bill shocks people.

If your income changes significantly, you can apply to reduce your payments on account. But if you reduce them too much and underpay, HMRC charges interest on the shortfall.

Expenses: what you can actually claim

Common allowable expenses for freelancers include:

Computer equipment and software (full cost if under £1,000, or capital allowances if over)
Phone and internet (business proportion only)
Travel to clients (not commuting to a regular workplace)
Professional indemnity insurance
Accountancy and bookkeeping fees
Home office costs (simplified: £6/week flat rate, or actual proportion of bills)
Marketing and website costs
Professional subscriptions and training
Stationery, postage, and printing

You cannot claim everyday clothes (even if you only wear them for work), food (unless overnight travel), fines and penalties, or anything with a personal use element unless you apportion it fairly.

The trading allowance

If your total self-employed income is under £1,000, you don't need to register or file a return. This is the trading allowance. It covers casual side income: selling things on eBay, occasional freelance gigs, tutoring a few hours a month. Once you pass £1,000 in a tax year, you must register with HMRC within 3 months.

Making Tax Digital: what's changing in 2026

From April 2026, self-employed people with income over £50,000 must use Making Tax Digital for Income Tax (MTD ITSA). This means keeping digital records using compatible software (not spreadsheets) and submitting quarterly updates to HMRC instead of a single annual return.

Those earning between £30,000 and £50,000 will join MTD from April 2027. Below £30,000, there's no confirmed date yet. The quarterly updates don't change how much tax you owe; they just spread the reporting throughout the year. HMRC-compatible software includes FreeAgent, Xero, QuickBooks, and several others.

Compared to employment: the real picture

As a freelancer earning £37,000 profit, you keep roughly £30,648. An employee on £37,000 keeps about £30,160. The freelancer is a little better off in cash terms, more so since Class 4 NI dropped to 6% for 2026/27. But the employee gets employer pension contributions (typically £1,110 at 3%), paid holiday (worth £5,500+ at that salary), statutory sick pay, and employer NI contributions toward their state pension.

When you factor in those hidden employment benefits, the self-employed person needs to earn about 20-30% more in gross profit to match an equivalent employed position. That's before you account for the time spent on admin, invoicing, chasing late payments, and doing your own tax return.

For a complete breakdown of how self-employed tax works, including deadlines, record-keeping, and common mistakes, read our full guide: Self-employed tax explained: what you owe HMRC in 2026/27.

Sources

HMRC Self Assessment tax returns gov.uk
HMRC self-employed National Insurance rates gov.uk
HMRC expenses if you're self-employed gov.uk

Common questions

You pay Income Tax and National Insurance on your taxable profit, which is your income minus allowable expenses. On a £37,000 profit you'd pay £4,886 Income Tax and £1,466 Class 4 NI, a total of £6,352. Class 2 NI is treated as paid once your profit passes £7,105, so there's nothing extra. That leaves £30,648 take-home, an effective rate of about 17.2% on your profit. Higher profits move into the 40% band above £50,270.

Class 4 is charged as a percentage of profit: 6% between £12,570 and £50,270 for 2026/27, then 2% on anything above. Class 2 was a flat weekly charge, but profits above the £7,105 Small Profits Threshold are now treated as having paid it, so most self-employed people pay no Class 2 at all. It's only voluntary, at £3.65 a week, if your profit is below £7,105 and you want to protect your state pension record.

Payment on account is an advance payment toward next year's tax. HMRC asks for 50% of your current year's bill by 31 January, then another 50% by 31 July. So in your first full year you effectively pay around 150% of one year's tax in a single go. It levels out after that because you've already paid ahead. If your income drops, you can apply to reduce the payments.

Anything spent wholly and exclusively for business: equipment and software, business travel, professional indemnity insurance, accountancy fees, a proportion of home office costs, phone and internet, marketing and training. You can't claim everyday clothing, ordinary commuting, fines and penalties, or the personal share of any mixed-use cost. Claiming everything you're entitled to lowers your taxable profit.

Yes, once your self-employed income passes £1,000 in a tax year you must register with HMRC. The deadline is 5 October after the end of the tax year in which you started. Below £1,000 the trading allowance covers you, so there's no need to register or file a return. Register late and HMRC can charge a penalty.