Self-Employment Tax 2026: National Insurance, Allowable Expenses & Tax Deadlines

Accuracy and Editorial Standards

This guide is written for UK sole traders, freelancers and landlords who need a practical overview of Self Assessment, National Insurance, allowable expenses and Making Tax Digital for Income Tax. It uses inline GOV.UK and HMRC links beside key rates, thresholds and deadlines so readers can verify the official source.

Reviewed date2 June 2026

Primary sourcesGOV.UK and HMRC guidance

Advice noteGeneral guidance only, not personal tax advice

Understanding Self-Employment Tax in the UK

As a self-employed person, you’re responsible for calculating and paying your own Income Tax and National Insurance contributions. Unlike employees, where taxes are deducted automatically, sole traders and freelancers must:

• Track all business income and expenses throughout the year
• Calculate their taxable profit
• File tax returns by strict HMRC deadlines
• Pay Income Tax and National Insurance contributions
• Keep detailed records for at least 5 years after the 31 January submission deadline HMRC record-keeping rules

From 6 April 2026, Making Tax Digital for Income Tax introduces a major change for qualifying sole traders and landlords. Instead of leaving everything until January, you must keep digital records, send quarterly updates to HMRC, and then submit your tax return through compatible software by 31 January. Submitting your MTD Income Tax return Understanding how self-employment tax works—and the new 2026 requirements—is essential to avoid mistakes and keep more of your income.

National Insurance for Self-Employed: How Much Will You Pay?

National Insurance for self-employed sole traders is based on profits. The two important categories are Class 2 and Class 4, but the rules changed from April 2024. In most cases, Class 2 is now treated as paid once your profits are above the Small Profits Threshold, while Class 4 remains the compulsory percentage-based contribution on profits above the Lower Profits Limit. National Insurance rates and allowances

Class 2 National Insurance (Treated as Paid or Voluntary)

For 2025-26, the Small Profits Threshold is £6,845 and the voluntary Class 2 rate is £3.50 per week. For 2026-27, the Small Profits Threshold is £7,105 and the voluntary Class 2 rate is £3.65 per week. If your profits are at or above the threshold, Class 2 is normally treated as paid to protect your National Insurance record, so you do not pay a separate Class 2 bill. If your profits are below the threshold, you can choose to pay voluntary Class 2 contributions to help avoid gaps in your National Insurance record. self-employed National Insurance rates

Class 4 National Insurance (Percentage-Based)

Class 4 NI is calculated as a percentage of annual taxable profit. For both 2025-26 and 2026-27:

• On profit over £12,570 up to £50,270: 6% contribution
• On profit above £50,270: 2% contribution National Insurance rates and allowances

Worked Example: National Insurance Calculation

Claiming Allowable Business Expenses

One of the most important ways self-employed people reduce their tax bill is by claiming allowable business expenses. The more expenses you legitimately claim, the lower your taxable profit—and the less Income Tax and National Insurance you pay.

However, HMRC has strict rules about what qualifies as an allowable expense. You can only claim costs that are wholly and exclusively for your business. HMRC allowable expenses guidance

Common Allowable Expenses

Home Office Expenses: The Simplified Method

If you work from home, HMRC allows simplified expenses based on the number of hours you work from home each month. This flat rate avoids calculating the business proportion of household costs such as heat and electricity, but it does not include telephone or internet costs. simplified home-working expenses

• 25 to 50 hours per month: £10 per month
• 51 to 100 hours per month: £18 per month
• 101 hours or more per month: £26 per month simplified home-working expenses

You can use simplified expenses only if you work from home for at least 25 hours per month. simplified home-working expenses Alternatively, you can calculate the actual business proportion of home costs using a reasonable method.

How to Calculate Your Taxable Profit

Your taxable profit is the foundation of your Income Tax and National Insurance calculations. It’s straightforward:

This £42,000 taxable profit is then subject to:

1. Income Tax at your marginal rate (20% for most people)
2. Class 4 National Insurance at 6% on profits over £12,570 up to £50,270, and 2% above £50,270 National Insurance rates and allowances

MTD Income Tax: What Changes in April 2026?

Making Tax Digital for Income Tax (MTD ITSA) is transforming how sole traders and landlords file tax returns. Starting April 2026, the rules change significantly. MTD eligibility and start-date guidance

New Requirements from April 2026 (Phase 1)

If your qualifying income from self-employment and/or property was more than £50,000 in the 2024-25 tax year, you need to use Making Tax Digital for Income Tax from 6 April 2026. MTD eligibility and start-date guidance You must:

• Keep digital records of all income and expenses throughout the year
• Submit quarterly updates (4 times per year) summarising income and expenses HMRC guidance on quarterly updates
• Submit your tax return through compatible software by 31 January following the tax year HMRC guidance on submitting the MTD tax return
• Use software that works with Making Tax Digital for Income Tax to send quarterly updates and your tax return

Quarterly Update Deadlines 2026-27

How MTD Changes Your Workflow

Instead of the old approach (keep records all year, file once annually by 31 January), MTD requires:

1. Quarterly record-keeping: Maintain digital records of income/expenses each quarter
2. Quarterly submissions: File updates to HMRC four times per year
3. Year-end tax return: Add other income, check figures, claim reliefs and submit your tax return through compatible software by 31 January HMRC guidance on submitting the MTD tax return

This quarterly workflow can reduce the January deadline rush and helps catch bookkeeping mistakes earlier in the tax year.

Important Deadlines for Sole Traders 2026

Tax Year Basics

The UK tax year runs from 6 April to 5 April the following year. So Tax Year 2025-26 runs from 6 April 2025 to 5 April 2026. Self Assessment deadline guidance

Key Deadlines for 2026

• 6 April 2026: Tax Year 2026-27 begins; MTD Income Tax starts for those with qualifying income over £50,000 in 2024-25 MTD eligibility and start-date guidance
• 5 October 2026: Tell HMRC if you need to complete a Self Assessment return for 2025-26 and have not sent one before, or if you need to reactivate registration Self Assessment registration guidance
• 31 October 2026: Paper Self Assessment return deadline for 2025-26 Self Assessment deadline guidance
• 7 August 2026: First MTD quarterly update due HMRC update deadline table
• 7 November 2026: Second MTD quarterly update due
• 31 January 2027: Online Self Assessment return and payment deadline for 2025-26 Self Assessment deadline guidance
• 7 February 2027: Third MTD quarterly update due
• 7 May 2027: Fourth MTD quarterly update due
• 31 January 2028: MTD tax return for 2026-27 due through compatible software HMRC MTD tax return deadline

Record-Keeping Requirements for Sole Traders

HMRC requires you to keep detailed business records to support every figure in your Self Assessment return. Here’s what you must keep: HMRC record-keeping rules

Records to Keep

• Income records: Sales invoices, receipts from customers, bank statements showing income deposits
• Expense records: Supplier invoices, receipts for purchases, utility bills, professional service invoices
• Bank statements: All business bank account statements showing income and expenses
• Payroll records: If you have employees, payroll documents and PAYE records
• VAT records: If VAT-registered, VAT invoices and VAT return documentation
• Asset records: Equipment purchases, depreciation calculations, disposal records
• Mileage log: If claiming vehicle mileage, detailed mileage records with business purpose HMRC record-keeping rules

Retention Period: At Least 5 Years After the 31 January Deadline

HMRC says self-employed people must keep business records for at least 5 years after the 31 January submission deadline for the relevant tax year. For example, if your 2025-26 online tax return is due by 31 January 2027, keep those records until at least the end of January 2032. HMRC record-keeping rules

Records can be digital (photos of receipts, spreadsheets, accounting software) or paper. However, HMRC increasingly prefers digital records and specifically requires them under MTD rules. MTD digital record-keeping guidance

Common Self-Employment Tax Mistakes to Avoid

Mistake 1: Not Claiming All Legitimate Expenses

Many self-employed people leave money on the table by not claiming all allowable expenses. Common forgotten deductions include home office costs, professional memberships, training courses, and vehicle mileage.

Solution: Work through the allowable expense categories systematically. If it’s wholly and exclusively for your business, claim it.

Mistake 2: Mixing Personal and Business Finances

Using one bank account for personal and business transactions makes record-keeping chaotic. When HMRC asks for evidence, you’ll struggle to produce clear documentation.

Solution: Open a separate business bank account. This instantly separates personal spending from business transactions, simplifying record-keeping.

Mistake 3: Poor Record-Keeping

Losing receipts, forgetting to record transactions, or maintaining messy files creates problems during HMRC audits. You may end up unable to substantiate your claims.

Solution: Implement a simple system: photograph receipts immediately, record them in a spreadsheet weekly, and store digital files in a cloud backup (Google Drive, Dropbox, OneDrive).

Mistake 4: Missing the January 31st Deadline (or Future Quarterly Deadlines)

Late Self Assessment tax returns and late payments can trigger HMRC penalties. For MTD Income Tax, HMRC says there are no penalty points for missing a quarterly update deadline in the 2026-27 tax year, but you still need to keep digital records and send the quarterly updates before you can submit your MTD tax return. Penalty points apply to missed quarterly updates for tax years after 2026-27. MTD Income Tax penalty guidance

Solution: Mark all deadlines in your calendar 6 months in advance. Submit returns 7-10 days early to avoid last-minute technical issues.

Mistake 5: Not Planning for Your Tax Bill

Many self-employed people are shocked when their tax bill arrives. They didn’t set aside money to pay it.

Solution: Estimate your annual tax bill and set aside money monthly. A simple rule of thumb: save 25-30% of your profit for Income Tax and National Insurance.

Frequently Asked Questions

Do I need to register as self-employed in 2026?

Yes, if your self-employment income before expenses is more than £1,000 in the tax year, you usually need to register for Self Assessment as a sole trader. For the 2025-26 tax year, you must tell HMRC by 5 October 2026 if you need to complete a tax return and have not sent one before, or if you need to reactivate registration. Self Assessment registration guidance

What happens if my profit is below the Personal Allowance?

If your taxable profit is below the standard Personal Allowance of £12,570, you may pay no Income Tax. Class 4 National Insurance starts on profits above £12,570. Class 2 may still be worth checking if you want to protect your National Insurance record. Income Tax rates Self-employed NI rates

Can I claim a self-employed loss against other income?

You may be able to claim relief for a trading loss, but the correct treatment depends on your circumstances, the type of loss and the tax year involved. Some losses can be set against other income, carried forward, or used in other ways under HMRC rules. HMRC losses guidance

Do I need to register for VAT as self-employed?

You must register for VAT if your total taxable turnover for the last 12 months goes over £90,000, or if you expect taxable turnover to go over £90,000 in the next 30 days. Below the threshold, VAT registration is usually voluntary. VAT registration guidance

What if my income or expenses straddle two tax years?

The answer depends on the accounting basis you use. Under cash basis, income is recorded when you receive it and expenses are recorded when you pay them. Under traditional accounting, income and expenses are normally recorded when they are earned or incurred. HMRC cash basis guidance

When does MTD Income Tax apply to partnerships?

MTD for Income Tax starts with eligible sole traders and landlords. Partnerships are not included in the April 2026 and April 2027 mandation groups shown in current GOV.UK guidance, so partnership timelines should be checked against the latest HMRC updates. MTD eligibility guidance

Can I do my own tax return or must I use an accountant?

You can do your own Self Assessment return, but many self-employed people use an accountant for accuracy, tax planning and peace of mind. If you are in scope for MTD Income Tax, you must use compatible software to keep digital records and send the required submissions. Compatible software guidance

Conclusion: Stay Compliant, Maximise Your Tax Efficiency

Self-employment offers flexibility and independence, but managing your own tax obligations requires discipline. Key takeaways:

• Know your tax deadlines: From 2026, quarterly MTD updates and an MTD tax return apply for people over the relevant qualifying income threshold MTD eligibility and start-date guidance
• Claim all legitimate expenses: This directly reduces your tax bill and improves cash flow
• Keep meticulous records: Digital records are required under MTD; keep self-employed records for at least 5 years after the 31 January submission deadline HMRC record-keeping rules
• Calculate your National Insurance: Class 2 and Class 4 contributions can be substantial; plan for them in your pricing National Insurance rates and allowances
• Use compatible software: From April 2026, people in scope need software that works with Making Tax Digital for Income Tax to send quarterly updates and submit their tax return HMRC compatible software guidance

Starting your own business is exciting. Managing tax properly ensures you keep more profit, stay compliant with HMRC, and avoid penalties. Whether you’re a freelancer, contractor or sole trader, these principles can help you stay organised. Limited company tax rules are different, so company directors should check separate Corporation Tax and payroll guidance. Get your record-keeping system in place now, and you will be better prepared for MTD compliance in 2026 and beyond.

Official HMRC and GOV.UK Sources Used

This article includes inline GOV.UK/HMRC links beside key tax dates, thresholds, rates and compliance rules. The main official sources used are listed below for transparency and reader verification.

Self Assessment and Record-Keeping

• Self Assessment tax return deadlines
• Registering for Self Assessment
• Self-employed record-keeping rules

National Insurance and Income Tax

• Self-employed National Insurance rates
• National Insurance rates and allowances
• Income Tax rates and Personal Allowance

MTD Income Tax

• MTD eligibility and start dates
• MTD update periods and deadlines
• Submitting your MTD Income Tax return
• Compatible software for MTD Income Tax
• MTD Income Tax penalty guidance
• MTD digital record-keeping guidance

Expenses, VAT and Accounting Rules

• Allowable expenses for self-employed people
• Simplified expenses for working from home
• VAT registration guidance
• Cash basis income and expenses guidance
• Self-employed losses guidance
• Office, property and equipment expenses
• Travel expenses for self-employed people
• Marketing, entertainment and subscriptions
• Training course expenses