Self-Employed? Here’s What You Need to Know About UK Tax Rates and Personal Allowances
- Feb 3, 2025
- 2 min read
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!
