UK Freelance Tax Guide (2025–26)

Adam F.

Last updated: 14 July 2025

Understanding How Much You'll Actually Pay (2025-2026)

Welcome to the World of Freelance Tax!

Embarking on a freelance career in the UK is an exciting venture, offering flexibility and autonomy. However, understanding tax obligations is a fundamental step to ensure financial success and peace of mind. This comprehensive guide is designed specifically for new UK freelancers, demystifying how much tax is actually paid. The focus is on the current tax year, 6 April 2025 to 5 April 2026, providing clear, fact-checked information directly from reputable UK government sources like GOV.UK: Rates and thresholds for employers 2025 to 2026. Unlike traditional employment where Income Tax and National Insurance Contributions (NICs) are automatically deducted from a salary via PAYE (Pay As You Earn), as a self-employed individual, the responsibility lies with the freelancer to calculate, report, and pay these taxes to HM Revenue & Customs (HMRC). This guide will break down each component, empowering new freelancers to navigate their finances with confidence.

Understanding Taxable Income: It's Not Just What You Earn

A common misconception for new freelancers is that tax is paid on every pound earned. This is not the case. Tax is calculated on "taxable profit," which is the total business income (gross income) minus "allowable business expenses". This distinction is crucial for reducing overall tax liability.

Note on Business Structure: This guide primarily focuses on the tax obligations for individuals operating as sole traders or in self-employed status. If you are considering or operating as a limited company, your tax responsibilities will differ, and it is advisable to seek specific guidance for that structure.

Allowable Expenses: A Tax-Reducing Tool

Allowable expenses are costs incurred "wholly and exclusively" for the purpose of a trade or business(https://www.gov.uk/expenses-if-youre-self-employed). By accurately tracking and claiming these expenses, taxable profit is effectively reduced, leading to a lower tax bill.

Common examples of allowable expenses include:

Office Costs: This covers essentials like stationery, postage, printing, phone bills, and internet access(https://www.gov.uk/expenses-if-youre-self-employed). Business-related computer software or equipment used for less than two years can also be claimed(https://www.gov.uk/expenses-if-youre-self-employed).
Travel Costs: Expenses for business-related travel, such as fuel, parking fees, train fares, bus fares, airfares, and accommodation for business trips, are typically allowable(https://www.gov.uk/expenses-if-youre-self-employed).
Vehicle Costs: If a vehicle is used for business, claims can be made for petrol, insurance, and repairs. Alternatively, a simplified "mileage allowance" can be used to calculate vehicle costs, which can save time and effort(https://www.gov.uk/expenses-if-youre-self-employed).
Professional & Financial Services: Fees paid to accountants, solicitors, or other professional advisors for business purposes are allowable. This also includes bank charges, overdraft fees, and interest on business loans(https://www.gov.uk/expenses-if-youre-self-employed).
Marketing & Advertising: Costs associated with promoting a business, such as website hosting and maintenance, online advertising, or printed flyers, are deductible(https://www.gov.uk/expenses-if-youre-self-employed).
Training Courses: Claims can be made for training courses that are directly related to improving skills for an existing business(https://www.gov.uk/expenses-if-youre-self-employed/training-courses).
Clothing: Generally, everyday clothing cannot be claimed. However, specific uniforms or protective clothing required for work are allowable expenses(https://www.gov.uk/expenses-if-youre-self-employed).
Home Office Costs: If working from home, a proportion of household costs like heating, electricity, Council Tax, mortgage interest, rent, and internet/telephone use can be claimed. A "reasonable method" must be used to calculate the business portion (e.g., based on the number of rooms used for business or the time spent working)(https://www.google.com/search?q=https://www.gov.uk/expenses-if-youre-self-employed/offices-premises).

It is important to note that personal expenses and entertaining clients are generally not allowable for tax purposes(https://www.gov.uk/expenses-if-youre-self-employed).

The Trading Allowance: A Simpler Alternative

For new freelancers, especially those with lower incomes or minimal expenses, HMRC offers a "trading allowance" of £1,000(https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income). If total self-employment income is £1,000 or less in a tax year, it does not need to be declared to HMRC. If gross income is over £1,000, one can choose to use this allowance instead of claiming individual allowable expenses(https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income). A crucial point is that one cannot use both the trading allowance and itemise allowable expenses; it is an "either/or" choice(https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income). For a new freelancer, this presents a strategic decision. If total business expenses are less than £1,000, the trading allowance is often simpler and more beneficial as it is a flat deduction without needing to track every receipt. However, if expenses exceed £1,000, it will almost certainly be more tax-efficient to itemise and claim all actual allowable expenses. This choice directly influences the taxable profit and, consequently, the tax bill.

Income Tax Explained: Personal Allowance, Basic, Higher & Additional Rates

The UK tax year runs from 6 April to 5 April. All figures discussed here apply to the 2025-2026 tax year.

Personal Allowance (0%): The Tax-Free Earnings Threshold

The Personal Allowance is the amount of income an individual can earn in a tax year before any Income Tax becomes payable. For the 2025-2026 tax year, the standard Personal Allowance is £12,570(https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2025-to-2026). This means the first £12,570 of taxable profit is completely tax-free. For higher earners, the Personal Allowance is reduced if "adjusted net income" goes above £100,000. For every £2 earned over £100,000, the Personal Allowance is reduced by £1. This means that if income reaches £125,140 or more, the Personal Allowance is completely withdrawn, and tax is paid on all income(https://www.gov.uk/income-tax-rates).

Income Tax Bands (for England, Wales, and Northern Ireland)

Once taxable profit exceeds the Personal Allowance, the remaining amount falls into different tax bands, each with a specific percentage rate.

Basic Rate (20%): The portion of taxable income from £12,571 up to £50,270 is taxed at the Basic Rate of 20%(https://www.gov.uk/income-tax-rates). This effectively means the first £37,700 of taxable income above the Personal Allowance is taxed at 20%.
Higher Rate (40%): Any taxable income from £50,271 up to £125,140 is taxed at the Higher Rate of 40%(https://www.gov.uk/income-tax-rates).
Additional Rate (45%): For taxable income above £125,140, the rate is 45%(https://www.gov.uk/income-tax-rates).

While the income tax rates themselves are set for 2025-2026, the freezing of tax thresholds until April 2028 has a significant long-term implication. As freelance income grows, even modestly due to inflation, a larger proportion of earnings will be subject to tax, or taxed at a higher rate, without any explicit change to the percentage rates. This phenomenon, often referred to as "fiscal drag," means the effective tax rate could increase over time, making proactive financial planning and budgeting even more crucial.

UK Income Tax Rates and Bands (2025-2026) (England, Wales, N. Ireland)

A Note on Scottish Tax Rates

It is important to be aware that Scotland has its own devolved income tax system with different rates and bands(https://www.gov.uk/scottish-income-tax). If you are a freelancer residing in Scotland, you will pay Scottish Income Tax on your freelance earnings, based on the Scottish rates and bands, while the Personal Allowance remains the same as the rest of the UK.

For the 2025-2026 tax year, the proposed Scottish Income Tax rates are(https://www.gov.scot/publications/scottish-income-tax-rates-and-bands/pages/proposed-rates-and-bands-2025-to-2026/):

Starter Rate: 19% on income from £12,571 to £15,397
Scottish Basic Rate: 20% on income from £15,398 to £27,491
Intermediate Rate: 21% on income from £27,492 to £43,662
Higher Rate: 42% on income from £43,663 to £75,000
Advanced Rate: 45% on income from £75,001 to £125,140
Top Rate: 48% on income over £125,140

For more detailed and up-to-date information, please refer to the official guidance on Scottish Income Tax on GOV.UK or the Scottish Government's website on Scottish Income Tax rates and bands.

Example Income Tax Calculation (England, Wales, N. Ireland):

Consider a new freelancer with a taxable profit of £40,000 for the 2025-2026 tax year.

Personal Allowance: The first £12,570 is tax-free.
Taxable Income Remaining: £40,000 (total profit) - £12,570 (Personal Allowance) = £27,430.
Basic Rate Tax: This entire remaining amount (£27,430) falls within the Basic Rate band (£12,571 to £50,270). Therefore, 20% is paid on £27,430.
Income Tax Due: 20% of £27,430 = £5,486.

National Insurance Contributions (NICs) for the Self-Employed

National Insurance Contributions are separate from Income Tax but are equally important. They contribute to eligibility for certain state benefits, most notably the State Pension, but also Maternity Allowance and other benefits. Building a complete National Insurance record is vital for future financial security(https://www.gov.uk/self-employed-national-insurance-rates).

Two Main Classes for Self-Employed Individuals:

Class 2 NICs: For the 2025-2026 tax year, the weekly rate for Class 2 NICs is £3.50(https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions). A significant change for most freelancers is that if profits are £6,845 or more a year (the Small Profits Threshold), Class 2 contributions are treated as having been paid to protect the National Insurance record. This means direct cash payment is not required(https://www.gov.uk/self-employed-national-insurance-rates). If profits are less than £6,845 a year, Class 2 NICs are not required. However, one can choose to pay voluntary Class 2 contributions at £3.50 per week to ensure qualifying years are built up for the State Pension and other benefits(https://www.gov.uk/self-employed-national-insurance-rates).
Class 4 NICs: Class 4 NICs become payable once annual profits are more than £12,570. These are calculated as a percentage of profits(https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions). For the 2025-2026 tax year, the rates are:
- 6% on profits between £12,570 and £50,270(https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions).
- 2% on profits over £50,270(https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions).

A notable policy adjustment for self-employed individuals is that for profits above £6,845, Class 2 NICs are now "treated as paid," meaning there will be no direct weekly payments. The National Insurance record will still be credited, which is beneficial for State Pension entitlement. However, if profits fall below this threshold, it is advisable to consider paying voluntary Class 2 contributions to avoid gaps in the NI record, as this could affect future State Pension and other benefits.

Self-Employed National Insurance Rates (2025-2026)

Example National Insurance Calculation:

Using the same freelancer with a taxable profit of £40,000 for the 2025-2026 tax year:

Class 2 NICs: Since profits (£40,000) are above the £6,845 Small Profits Threshold, Class 2 contributions are treated as paid (no direct payment)(https://www.gov.uk/self-employed-national-insurance-rates).
Class 4 NICs: Profits are above the £12,570 threshold, so Class 4 is due. The entire taxable profit of £40,000 falls within the £12,570 to £50,270 band. Amount subject to 6% Class 4 NICs: £40,000 - £12,570 = £27,430.
National Insurance Due: 6% of £27,430 = £1,645.80.

Your Tax Journey: The Self Assessment Process

Who Needs to Register for Self Assessment

Registration for Self Assessment with HMRC is mandatory if self-employed income was more than £1,000 in a tax year(https://www.gov.uk/set-up-sole-trader). Even if an individual is also employed (e.g., freelancing on the side), they will need to register and complete a Self Assessment tax return to declare their untaxed self-employed income(https://www.gov.uk/set-up-sole-trader).

How to Register

The registration deadline is critical. Registration for Self Assessment must be completed by 5 October following the end of the tax year in which self-employment began(https://www.gov.uk/set-up-sole-trader). For instance, if freelancing started anytime between 6 April 2024 and 5 April 2025 (the 2024-2025 tax year), registration must be completed by 5 October 2025(https://www.gov.uk/set-up-sole-trader).

The registration process typically involves several steps:

Create a Government Gateway account: This serves as the portal to HMRC's online services. If one does not already exist, a user ID and password will need to be created on the GOV.UK website(https://www.gov.uk/register-for-self-assessment).
Register for Self Assessment online: Once logged in, an online registration form (often referred to as form SA1) is completed. This requires personal details, National Insurance number, and the date self-employment commenced(https://www.gov.uk/register-for-self-assessment).
Receive a Unique Taxpayer Reference (UTR): After successful registration, HMRC will send a 10-digit UTR by post, usually within 10 working days (or up to 21 days if living abroad)(https://www.gov.uk/register-for-self-assessment). This is a unique tax identification number and should be kept safe.
Receive and activate an activation code: A separate letter will follow with an activation code. This is necessary to fully activate the online Self Assessment account and must be activated within 28 days of receipt(https://www.gov.uk/register-for-self-assessment).

Key Deadlines for Filing Your Tax Return and Paying Your Tax Bill

The tax year for which reporting occurs runs from 6 April to 5 April. The deadlines for filing and paying fall in the following calendar year.

Paper Tax Return Deadline: For the tax year ending 5 April 2025, a paper tax return must be received by HMRC by 31 October 2025(https://www.gov.uk/self-assessment-tax-returns/deadlines).
Online Tax Return Deadline: For the tax year ending 5 April 2025, an online tax return must be submitted by 31 January 2026. This is the most common method for freelancers(https://www.gov.uk/self-assessment-tax-returns/deadlines).
Payment Deadline: Any tax owed for the tax year ending 5 April 2025 must be paid by 31 January 2026(https://www.gov.uk/self-assessment-tax-returns/deadlines). This payment may include a "balancing payment" for the previous year and the first "payment on account" towards the tax bill for the current tax year (2025-2026).
Second Payment on Account: If the tax bill is over £1,000, typically two "payments on account" are made each year. The second payment for the 2025-2026 tax year will be due by 31 July 2026(https://www.gov.uk/self-assessment-tax-returns/payments-on-account).

Meeting Self Assessment deadlines is paramount. HMRC imposes automatic penalties for late registration, late filing, and late payment, which can quickly accumulate to significant amounts(https://www.gov.uk/self-assessment-tax-returns/penalties). For example, a late filing penalty starts at £100, even if no tax is owed(https://www.gov.uk/self-assessment-tax-returns/penalties). Beyond filing, the tax bill must also be paid by the 31 January deadline to avoid interest and further penalties(https://www.gov.uk/self-assessment-tax-returns/penalties). Understanding "payments on account" (where estimated tax is paid in two instalments) is vital for cash flow management(https://www.gov.uk/self-assessment-tax-returns/payments-on-account). Proactive record-keeping and setting aside money for tax throughout the year are the best strategies to avoid these costly pitfalls.

How to Pay Your Tax Bill

HMRC offers several convenient ways to pay a Self Assessment tax bill(https://www.gov.uk/pay-self-assessment-tax-bill):

Online: Payments can be made directly through the Government Gateway account or via online banking (using Faster Payments, Bacs, or CHAPS)(https://www.gov.uk/pay-self-assessment-tax-bill).
Debit Card Online: Payment can be made using a personal debit card online, with no fee(https://www.gov.uk/pay-self-assessment-tax-bill/by-debit-or-corporate-credit-card-online).
Direct Debit: A Direct Debit can be set up with HMRC(https://www.gov.uk/pay-self-assessment-tax-bill).
Cheque by Post: A cheque can be sent through the post(https://www.gov.uk/pay-self-assessment-tax-bill).

It is crucial to always use the 11-character payment reference (the 10-digit Unique Taxpayer Reference (UTR) followed by the letter 'K') to ensure the payment is correctly allocated(https://www.gov.uk/pay-self-assessment-tax-bill/how-to-pay).

Getting Started: Key Takeaways and Next Steps

To summarise the essential points for new UK freelancers:

Tax is calculated on taxable profit, not gross income. Maximise this by claiming allowable expenses.
Understand the Personal Allowance (£12,570 for 2025-2026) and how income falls into the Basic (20%), Higher (40%), and Additional (45%) tax rates (or the specific Scottish rates if applicable).
Be aware of National Insurance Contributions (Class 2 and Class 4), noting that Class 2 is often "treated as paid" for profits over £6,845.
Register for Self Assessment by 5 October following the end of the first tax year as a freelancer if income exceeds £1,000(https://www.gov.uk/set-up-sole-trader).
Strictly adhere to the 31 January deadline for online filing and payment (for the previous tax year) to avoid significant penalties(https://www.gov.uk/self-assessment-tax-returns/penalties).
Consider using the £1,000 trading allowance if business expenses are low, but remember it is an alternative to itemising(https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income).
Be mindful of fiscal drag, as frozen tax thresholds can increase the effective tax rate over time.
VAT Threshold: While not typically relevant for brand-new freelancers, be aware that you must register for VAT if your VAT taxable turnover exceeds £90,000 in a 12-month period. This is an important threshold for future growth.

Practical Advice for New Freelancers:

Keep Meticulous Records: This is the golden rule of self-employment. Maintain clear, organised records of all income and expenses(https://www.gov.uk/expenses-if-youre-self-employed). Digital accounting software can be invaluable for this.
Budget for Tax: Do not wait until the deadline to consider the tax bill. A good practice is to set aside a percentage of every payment received (e.g., 20-30% or more, depending on income) into a separate savings account. This ensures funds are ready when the tax bill is due.
Don't Hesitate to Seek Advice: While this guide provides a solid foundation, tax rules can be complex. If unsure about any aspect of tax obligations, HMRC provides guidance, or one can consider consulting a qualified accountant or tax adviser. They can help with complex situations and ensure tax positions are optimised.

Glossary

Allowable Expenses: Costs incurred "wholly and exclusively" for the purpose of your business that can be deducted from your income to reduce your taxable profit.
Balancing Payment: A final payment to HMRC that settles your tax bill for the previous tax year, made by 31 January.
Fiscal Drag: A phenomenon where inflation or income growth pushes more taxpayers into higher tax brackets, or reduces the real value of tax-free allowances, even if tax rates remain unchanged. This happens when tax thresholds are frozen.
Government Gateway: The online service used to access HMRC services, where you can submit your Self Assessment tax return and manage your tax affairs.
HMRC (HM Revenue & Customs): The UK government department responsible for collecting taxes.
National Insurance Contributions (NICs): Payments made by employed and self-employed individuals that count towards eligibility for certain state benefits, such as the State Pension.
PAYE (Pay As You Earn): The system by which employers deduct Income Tax and National Insurance contributions directly from an employee's salary. Freelancers operating as sole traders do not pay tax via PAYE.
Payment on Account: Advance payments towards your next Self Assessment tax bill, typically made in two instalments (31 January and 31 July), if your previous year's tax bill was over £1,000.
Personal Allowance: The amount of income you can earn in a tax year before you start paying Income Tax. For 2025-2026, this is £12,570.
Self Assessment: The system HMRC uses to collect Income Tax from people who earn income that is not taxed at source (e.g., self-employed income, rental income). It requires individuals to report their income and expenses annually.
Sole Trader: A self-employed individual who owns and runs their business as an individual. For tax purposes, there's no legal distinction between the individual and their business.
Taxable Profit: Your business income minus your allowable business expenses. This is the amount on which your Income Tax and Class 4 National Insurance are calculated.
Trading Allowance: A tax-free allowance of £1,000 for self-employment or property income. You can choose to use this allowance instead of calculating and claiming individual allowable expenses if your gross income is £1,000 or more.
UTR (Unique Taxpayer Reference): A 10-digit number issued by HMRC to identify you for tax purposes, particularly for Self Assessment.
VAT (Value Added Tax): A consumption tax added to most goods and services sold in the UK. Businesses must register for VAT if their VAT taxable turnover exceeds a certain threshold (£90,000 for 2025-2026).

Citations / Further Reading:

Page updated

Google Sites

Report abuse