Do the self-employed pay less tax than employees?

On the same income they usually take home a little more, because self-employed Class 4 National Insurance is 6% for 2026/27 while employee National Insurance is 8%. On £37,000 a sole trader keeps about £30,648 against £30,160 for an employee, roughly £488 more. The gap widens at higher incomes.

Why does self-employment look better on paper?

The take-home comparison ignores what employment gives you for free: employer pension contributions, paid holiday, statutory sick pay, redundancy rights and a guaranteed wage. A self-employed person must fund all of that themselves and absorb the risk of unpaid or late invoices, so the small cash advantage rarely tells the whole story.

Employed vs self-employed calculator

Same income, two ways of earning it. See the take-home difference for 2026/27, and what you give up.

Compare take-home on the same income

Enter a gross figure: an annual salary if employed, or your taxable profit if self-employed. We show both.

Gross income / taxable profit

Employed take-home

£30,160

Income Tax

£4,886

Employee NI (8%/2%)

£1,954

Self-employed take-home

£30,648

Income Tax

£4,886

Class 4 NI (6%/2%)

£1,466

On £37,000, a sole trader keeps about £488 more than an employee, mostly because Class 4 NI is lower than employee NI.

Take-home isn't the whole story. Employment adds a pension top-up, paid holiday, sick pay and job security that a freelancer funds themselves. See the note below before you decide.

Uses HMRC 2026/27 rates. Employed = Income Tax + Class 1 NI. Self-employed = Income Tax + Class 4 NI. Estimates only, not financial advice. Sources: gov.uk National Insurance.

Why the self-employed keep a little more

On identical income, a sole trader usually takes home slightly more than an employee. The reason is National Insurance. For 2026/27 employees pay Class 1 NI at 8% on earnings between £12,570 and £50,270, while the self-employed pay Class 4 NI at only 6% across the same band. Income Tax is the same for both. That 2-point NI gap is the whole difference in the headline numbers.

On £37,000, an employee takes home about £30,160 and a sole trader about £30,648, a difference of roughly £488. At £50,000 the gap grows to around £748, because more of the income sits in the band where the NI rates differ. Above £50,270 both pay 2%, so the gap stops widening at the top.

What the headline number leaves out

The take-home figure flatters self-employment because it ignores everything employment gives you at no cost to yourself:

Employer pension contributions, typically 3% of qualifying earnings and often more, which a freelancer has to fund entirely from their own pocket.
Paid holiday. Statutory minimum is 5.6 weeks, worth well over £3,000 a year on a £37,000 salary. A freelancer earns nothing while off.
Statutory sick pay and a guaranteed wage even in a quiet month.
Redundancy rights, notice periods and other employment protections.

A freelancer also carries the risk of unpaid or late invoices, spends unpaid hours on admin, invoicing and their own tax return, and has no employer handling PAYE. Once you price all that in, the small cash advantage often disappears.

How much more to charge as a freelancer

A common rule of thumb is to aim for 20 to 30% more in profit than the salary you'd accept as an employee, to cover the missing pension, holiday and sick pay plus the admin burden. Matching only the take-home number leaves you genuinely worse off. If a £37,000 salary is your benchmark, target something closer to £45,000 in profit before you'd call the switch a lateral move financially.

Which suits you?

Self-employment suits people who value control, variety and the chance to scale income above a fixed salary, and who can handle irregular cash flow. Employment suits people who want stability, benefits and someone else dealing with tax and pension. The tax difference is real but small; the lifestyle and risk difference is the part that actually decides it for most people.

Sources

HMRC National Insurance: how much you pay gov.uk
HMRC Income Tax rates and bands gov.uk
Holiday entitlement gov.uk

Common questions

On the same income they usually take home a little more, because self-employed Class 4 NI is 6% for 2026/27 while employee NI is 8%. On £37,000 a sole trader keeps about £30,648 against £30,160 for an employee, roughly £488 more. The gap widens at higher incomes up to £50,270.

The take-home comparison ignores what employment gives you for free: employer pension contributions, paid holiday, statutory sick pay, redundancy rights and a guaranteed wage. A freelancer funds all of that themselves and absorbs the risk of unpaid or late invoices, so the small cash advantage rarely tells the whole story.

Employees pay Class 1 NI at 8% on earnings between £12,570 and £50,270, then 2% above. The self-employed pay Class 4 NI at 6% between £12,570 and £50,270, then 2% above. Class 2 is treated as paid above the £7,105 Small Profits Threshold, so most sole traders pay no Class 2.

Aim to earn roughly 20 to 30% more in profit than the equivalent salary to cover the missing pension, holiday, sick pay and admin time. Matching only the take-home number leaves you worse off once those benefits are priced in.