Self-employed tax brackets and National Insurance rates explained

To know how much tax you owe as a self-employed professional, you first need to understand what the current Income Tax and National Insurance (NI) rates are. 

Tip: Knowing what you earn after tax and NI has been removed from your profits forms an important part of budgeting as a sole trader. Until you know what your take-home pay after tax and NI is, it’s hard to judge what funds you’ve got available. 

In this article, we cover what the current Income Tax and NI brackets are across the UK. You’ll also find some useful examples to help you better understand how much of your income is taxable.

Let’s get started.

Self-employed tax-free Personal Allowance

Your ‘Personal Allowance’ is the amount of money you can earn before you have to start paying tax. The standard tax-free Personal Allowance in the UK is currently £12,570. This was changed from £12,500 when we entered the 2021 financial year. 

Personal Allowance example

Let’s say you earn £20,000 profit (after business expenses have been taken off) from your self-employed work in a year. To work out how much of this is taxable, you need to minus your Personal Allowance. The remaining figure, £7,430, is what’s subject to Income Tax.

The Personal Allowance usually rises alongside inflation (so that it reflects how much things cost). But the Chancellor of the Exchequer announced earlier this year (2021) that it’ll now be frozen until 2026. This comes as part of the UK’s post-pandemic recovery plan. 

Self-employed Income Tax rates 

As a self-employed professional, you need to pay Income Tax on anything you earn over your Personal Allowance. That includes all types of income – say, for example, you work as a freelance photographer but also have a part-time job in a cafe. How much tax you owe will depend on how much you’ve earned from all of your different income sources. 

You can read about how to file your Self Assessment and pay your tax bill here.

The current Income Tax brackets in England, Wales and Northern Ireland are:

Band Taxable Income Tax rate
Personal Allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £150,000 40%
Additional rate over £150,000 45%

Like the Personal Allowance, these tax thresholds have been increased slightly from 2020-21 (for example, the higher rate threshold was £50,000 previously). They are now also to be frozen until 2026 as part of the UK’s post-pandemic recovery plan. 

The Income Tax brackets are slightly different in Scotland. That means if you live in Scotland, your earnings will be subject to different rates to those living elsewhere in the UK.

The current Income Tax brackets in Scotland are:

Band Taxable Income Scottish Tax Rate
Personal Allowance Up to £12,570 0%
Starter rate £12,571 to £14,667 19%
Basic rate £14,668 to £25,296 20%
Intermediate rate £25,297 to £43,662 21%
Higher rate £43,663 to £150,000 41%
Top rate over £150,000 46%

Do you pay a higher percentage on all earnings when you’re in a higher tax bracket?

No, if you’re in a higher tax bracket, you don’t pay the higher percentage on all of your earnings.

Let’s use the tax rates for England, Wales and Northern Ireland as an example. Say your profits (minus business expenses) were £56,000 in a year – you wouldn’t pay a 40% tax rate on all of this just because you went over the £50,271 mark. Instead, it would look like this:

  • You’d pay zero tax on the first £12,570 of your profits 
  • You’d pay 20% tax on your profits between £12,571 to £50,270 – so, 20% of £37,699 = £7,539.80
  • Then you’d pay 40% tax on on any remaining profits over £50,271 – so, 40% of £5,729 = £2,291.60

The total income tax you’d pay in this scenario would be £9,831.40 (that’s £7,539.80 + £2,291.60).

Self-employed National Insurance rates 

National Insurance payments are different to Income Tax payments, in that they go specifically towards your ‘State Benefits’. These include things like your State Pension, as well as Maternity/Paternity Allowance.

There are different classes of National Insurance payments, and the two main types that self-employed people pay are Class 2 and Class 4. This might sound a little confusing but the main numbers you need to know are:

  • You’ll pay Class 2 NI if your profits are £6,515 or more a year
  • You’ll pay Class 4 NI if your profits are £9,568 or more a year

Don’t forget your profits are what’s left over after you’ve taken business expenses and other tax relief payments off your total self-employed income. 

The current UK Class 2 and Class 4 National Insurance rates are:

Class Rate for tax year 2021 to 2022
Class 2 £3.05 a week
Class 4 9% on profits between £9,569 and £50,270

2% on profits over £50,270

Again, if you earn more than the higher threshold £50,270, you only pay the 2% rate on anything
over this, not the total sum of your earnings. 

Working as a self-employed professional comes with so many benefits. But stressing about what tax you owe can occasionally put a damper on things when you’re not armed with the right information. That’s why we aim to provide our members and readers with as much knowledge as possible, so they can handle their taxes and finances with confidence. If you’d like to learn more, you might also find these articles useful:

For more helpful articles, click the link below