The basic information about self-employment tax and insurance is often confused among people. As a self-employed person, you are responsible for paying income tax and class 2/class 4 national insurance. You must ensure to stay on top of record maintenance, as this will help you to pay the right amount of tax and will save you from troubles in the future.
To know the exact amount that you are liable to pay as tax, you have to identify your exact employment status. By this, we mean to know whether you are employed or a self-employed individual. This might sound like a straightforward matter; however, identifying the employment status becomes a complex question at times. This happens when you are employed for your first job and also registered as self-employed for your second source of income. If you are wondering about your employment status by now, you will get your queries answered in the discussion further.
Are you a sole trader or self-employed and want to have another business in the United Kingdom? Whether you’re managing one business or juggling multiple ventures, make sure you’re registered the right way. It’s easy and quick to Register as Self-Employed with CruseBurke.
Identify Your Employment Status
If you wish to be more clear about your employment status and self-employment tax, you can use the tool that has a series of questions to identify your exact employment status. This is offered by HMRC. You need to be aware that this tool only works as an indicator. Here is the link to check employment status for tax. Moreover, this is mandatory that you get yourself registered immediately when you become a self-employed individual. In case of delaying the registration, you will have to deal with the penalty.
Tax-Free Earnings when You’re Self-Employed
This does not matter if you are employed or self-employed in the case of tax-free earnings. You will be eligible for just the same tax-free allowance as an employed individual. In the year 2025-26, the standard personal allowance is £12,570 for every £2 of the amount that you make over the amount of £100,000. This depends on how much earnings you can make. Consider this before you plan to pay the income tax. In the case, your earnings go over the figure of £100,000, the figure of standard personal allowance is £12,570 in the tax year 2025-26.
On the other hand, if you are doing two jobs and one of them is self-employed, the case becomes a little complex in this scenario. You are eligible to get only one personal allowance. This depends on HMRC as to how they views your source of income. As well as which one is considered the main source of your income. Usually, people consider their main employment according to their earnings. By this, we mean to consider the job that is giving you more earnings as your main employment.
Moreover, the tax code is a simple way to figure this out and be clear about your main employment.
Self-Employment Tax for Self-Employed Individuals
You are liable to pay tax on the trading profits you are making from your business, in case you are a self-employed individual. Several people confuse paying the trading tax on the total income, but it is not the case. However, the question that arises here is how to work out what your trading profits are. This can be calculated through a simple formula. Simply, you can deduct your business expenses from your total income. The figure you will get after this will give you the amount on which you have to pay the tax.
In case you are a self-employed individual, you will pay the same amount of income tax as you do for your employed income. Are you now wondering about the rate of income tax? This also depends on the amount of money you make as earnings. In case your limit is somewhere between £0 to £12,570, you will have to pay no tax on the trading profits you are making. If your limit is between £12,571 to £50,270, you will pay 20%, which is the basic rate of tax on the trading profits.
In case of the higher rate, you will pay 40% tax on your profits if you are between £50,271-£150,000. Furthermore, if you cross the limit of £150,000, you will have to pay additional tax. That is 45% of your trading profits. Always remember to consider your tax bracket when you plan to pay the tax. It is vital to understand what is the tax rate according to your trading profits to pay the right amount of tax.
National Insurance for the Self-Employed
From April 2024, Class 2 NICs have been abolished. In 2025–26, self-employed individuals pay Class 4 NICs at 6% on profits between £12,570 and £50,270, and 2% on profits above that.
The Bottom Line
In conclusion, we can say that paying the right amount of tax is a complicated process. You must be aware of the right tax bracket according to your trading profits to make the process error-free. Moreover, you must realise the amount of profit in which your earnings become tax-free as well.
This information will protect you from future troubles and any kind of penalties. We hope this gathered information will be helpful for you to develop a better understanding and deal with your tax affairs in a more professional way.
Get in touch with one of our team members to know more about the tax percentage if you are a self-employed individual. We will ensure to provide the best possible tax advice for your business.
Disclaimer: The information provided in this article about self-employment tax includes text and graphics in general. It does not intend to disregard any of the professional advice.