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Self-Employed? Here’s What You Need to Know About UK Tax Rates and Personal Allowances

If you’re self-employed, understanding your tax obligations is crucial to managing your finances efficiently. This guide breaks down personal allowances, income tax bands, and National Insurance rates for the 2024/25 and 2025/26 tax years to help you plan ahead.

Personal Allowance for the Self-Employed

The Personal Allowance is the amount you can earn before paying income tax. For the 2024/25 and 2025/26 tax years, the standard Personal Allowance is £12,570.

If your total income exceeds £100,000, your Personal Allowance reduces by £1 for every £2 earned above this limit. Once your income reaches £125,140, you no longer receive any Personal Allowance.


Self-Employed Income Tax Rates and Bands

As a self-employed individual, your taxable income includes your profits after allowable expenses. You pay tax based on the following bands:

Tax Band

Income Range

Tax Rate

Basic Rate

£12,571 - £50,270

20%

Higher Rate

£50,271 - £125,140

40%

Additional Rate

Over £125,140

45%

You only pay the higher tax rate on earnings within that band. For example, if you earn £60,000, you pay 20% on £37,699 and 40% on £9,729.

National Insurance Contributions (NICs) for the Self-Employed

Self-employed individuals pay two types of NICs:

  • Class 2 NICs 

    • if your profits are £6,725 or more a year you do not need to pay anything, your Class 2 are treated as being paid to protect your national insurance record.

    • if your profits are below £6,725 you can voluntarily pay £3.45 a week to count towards your National Insurance record

  • Class 4 NICs

    • If your profits exceed £12,570, you pay 6% on profits between £12,570 and £50,270, and 2% on profits over £50,270.

Tax-Free Trading Allowance

If your self-employment income is below £1,000, you don’t need to register for self-assessment or pay tax. This is called the Trading Allowance. Related: What’s The £1,000 Tax-free Trading Allowance? 

How to Stay Tax Compliant

To avoid unexpected tax bills, ensure you:

  • Keep accurate records of income and expenses.

  • Set aside tax payments throughout the year.

  • Submit your Self-Assessment Tax Return before the 31 January deadline.

  • Consult a tax professional if needed.

If you need tailored advice on your self-employment taxes, get in touch for a free consultation!

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