If you work for yourself in the UK as a consultant, designer, developer, writer or any other kind of independent professional, you need to understand which taxes you pay and when. This guide explains what UK freelancers pay in 2026/27, how the numbers work and what you need to do to stay compliant with HMRC.
- Sole trader or limited company
- Income tax for freelancers
- National Insurance
- VAT: when you need to register
- Self Assessment: how you report and pay
- Allowable expenses that reduce your bill
- Payments on account explained
- Making Tax Digital for freelancers
- Tax if you work through a limited company
- Frequently asked questions
Sole trader or limited company
Most freelancers start out as sole traders. It is the simplest structure. You register as self-employed with HMRC, file a Self Assessment tax return each year and pay Income Tax and National Insurance on your profits. There is no legal separation between you and your business.
Some freelancers later set up a limited company and pay themselves through a combination of salary and dividends. A company brings extra responsibilities, such as annual accounts, a Corporation Tax return and a confirmation statement. This guide covers both structures.
Income tax for freelancers
As a sole trader, you pay Income Tax on your taxable profit, which is your freelance income minus your allowable business expenses.
In 2026/27, the Income Tax bands for England, Wales and Northern Ireland are:
- Up to £12,570: Personal Allowance, 0%
- £12,571 to £50,270: basic rate, 20%
- £50,271 to £125,140: higher rate, 40%
- Over £125,140: additional rate, 45%
If you live in Scotland, Scottish Income Tax rates and bands apply to your profits instead. National Insurance is the same across the UK.
A practical example
Say you earn £45,000 from freelancing in 2026/27 and have £5,000 of allowable expenses. Your taxable profit is £40,000. The first £12,570 is covered by your Personal Allowance, and you pay 20% on the remaining £27,430, which comes to £5,486 of Income Tax.
If your adjusted net income goes over £100,000, your Personal Allowance falls by £1 for every £2 above that level and disappears at £125,140. This creates an effective 60% rate on income between £100,000 and £125,140, so pension contributions and other planning become important at that level.
National Insurance
Class 4 National Insurance
Sole traders pay Class 4 National Insurance on their annual profits:
- Profits between £12,570 and £50,270: 6%
- Profits above £50,270: 2%
Using the same example, a taxable profit of £40,000 gives Class 4 National Insurance of 6% on £27,430, which is £1,645.80. In total, you would owe about £5,486 of Income Tax and £1,646 of National Insurance, around £7,132 before any other adjustments.
Class 2 National Insurance
Since April 2024, self-employed people no longer have to pay Class 2 National Insurance. If your profits are above the small profits threshold, you receive National Insurance credits towards your State Pension without paying anything extra. If your profits are below it, you can choose to pay Class 2 voluntarily to protect your State Pension record.
VAT: when you need to register
You must register for VAT if your taxable turnover goes over £90,000 in any rolling 12-month period, or if you expect it to go over £90,000 in the next 30 days alone. Taxable turnover is the value of everything you sell that is not exempt or outside the scope of VAT. It is measured before expenses, so it is not the same as your profit, and some income, such as services supplied to business clients based outside the UK, does not count towards it.
Once registered, you charge VAT on your invoices, usually at 20% for standard-rated services, and pay it to HMRC through regular VAT returns.
Should you register voluntarily?
If most of your clients are VAT-registered businesses, registering before you reach the threshold can work in your favour, because your clients can reclaim the VAT you charge and you can reclaim VAT on your business purchases. If your clients are mainly members of the public, adding 20% to your invoices makes you more expensive.
The Flat Rate Scheme
HMRC offers a Flat Rate Scheme for smaller VAT-registered businesses. Instead of tracking VAT on every transaction, you pay a fixed percentage of your VAT-inclusive turnover to HMRC. The percentage depends on your trade sector, and a lower rate of 16.5% applies if you spend very little on goods. It can simplify your admin, but it is not always the cheapest option, so run the numbers before you join.
Self Assessment: how you report and pay
As a freelancer, you report your income and expenses to HMRC through the annual Self Assessment tax return. You need to register for Self Assessment if you are self-employed, even if you also have a PAYE job.
Key dates for the 2026/27 tax year
- 31 January 2027: first payment on account for 2026/27, if payments on account apply to you
- 31 July 2027: second payment on account for 2026/27
- 5 October 2027: deadline to register if you started freelancing in the 2026/27 tax year
- 31 January 2028: online tax return deadline for 2026/27 and payment of any balance owed
Missing these deadlines leads to automatic penalties and interest, starting with a £100 penalty for a late return.
Allowable expenses that reduce your bill
You pay tax on your profit, not your turnover. Business expenses that are wholly and exclusively for your work reduce your taxable profit. Common allowable expenses for freelancers include:
- A proportion of your household costs if you work from home
- Professional subscriptions and memberships
- Equipment such as laptops, cameras, software and specialist tools
- Business travel (not your regular commute)
- Marketing and advertising costs
- Professional indemnity insurance
- Accountancy and bookkeeping fees
- Training that updates skills you already use in your work
Personal pension contributions are not a business expense, but they do give you tax relief on your personal tax return. Good bookkeeping throughout the year means you will not miss deductions when you file. Keep your records for at least five years after the 31 January filing deadline.
Using your home as an office
HMRC allows two approaches. You can claim a flat monthly amount based on the hours you work from home: £10 for 25 to 50 hours, £18 for 51 to 100 hours and £26 for 101 hours or more. Or you can work out the business proportion of your actual household costs. The actual cost method often gives a larger deduction but needs more record keeping.
Payments on account explained
Payments on account catch many new freelancers out. If your Self Assessment bill is more than £1,000 and less than 80% of your tax was collected at source, for example through PAYE, HMRC asks you to make advance payments towards the next year’s bill.
Each payment on account is half of your previous year’s bill, due on 31 January and 31 July. In your first big year of freelancing, this can mean paying up to 150% of the bill you expected in January: the tax for the year just gone plus the first payment on account for the current year.
Planning your cash flow around these dates avoids surprises. Many freelancers move 25% to 30% of every payment they receive into a separate tax savings account.
Making Tax Digital for freelancers
Since 6 April 2026, Making Tax Digital for Income Tax has applied to sole traders and landlords with qualifying income over £50,000. You keep digital records and send quarterly updates to HMRC through compatible software, then file a final tax return after the year end.
The threshold falls to £30,000 from 6 April 2027 and to £20,000 from 6 April 2028. If you are close to these levels, now is the time to move your records into software such as Xero, and our bookkeeping service can set it up correctly and keep it current.
Tax if you work through a limited company
Some freelancers work through a limited company rather than as sole traders. The tax position is different.
Corporation Tax
Your company pays Corporation Tax on its profits. In 2026/27:
- Profits up to £50,000: 19% small profits rate
- Profits between £50,000 and £250,000: 25% with marginal relief
- Profits over £250,000: 25% main rate
Salary and dividends
Many freelance directors take a salary set with the National Insurance thresholds and the Personal Allowance in mind, then take further income as dividends from profits after Corporation Tax. In 2026/27, dividends are taxed as follows:
- Dividend allowance: first £500 tax free
- Basic rate: 10.75%
- Higher rate: 35.75%
- Additional rate: 39.35%
There is no single income level at which incorporation automatically becomes more tax efficient. The right structure depends on your profits, personal income requirements, other income, how much you plan to retain, pension contributions, extraction strategy and the additional costs and responsibilities of running a company, including annual accounts.
IR35 and the off-payroll working rules
If you work through a limited company but your contracts look like employment in all but name, the off-payroll working rules, known as IR35, may apply. If they do, you lose most of the tax advantages of the company structure. For small private-sector clients, your own company decides your status. For medium and large private-sector clients and all public-sector clients, the client decides. If IR35 may apply to you, get specialist advice promptly.
Need an accountant for your freelance business?
NDCA is an ACCA-regulated accountancy practice with fixed monthly fees and a named accountant. Book a free consultation and pick a time that suits you.
Frequently asked questions
When do I need to register as self-employed?
By 5 October after the end of the tax year in which you started, so 5 October 2027 for anyone who began in 2026/27. Registering early makes it easier to plan for your first tax bill.
What if I also have a PAYE job alongside my freelance work?
Your freelance income still goes on a Self Assessment return. HMRC takes your PAYE income and the tax already deducted into account, so you pay additional tax on your freelance profits only.
How much should I save for my tax bill?
Many freelancers set aside 25% to 30% of their income. If your profits take you into the higher rate band, you will need to save more. The right amount depends on your total income, expenses and National Insurance position, and an accountant can work out a precise figure for you.
Do freelancers have to charge VAT?
Only once you are VAT registered. Registration becomes compulsory once your VAT-taxable sales pass £90,000 in any rolling 12 months, and is optional below that.
Can I claim expenses if I work from home?
Yes. Use either method above: the flat monthly rate, or a share of heating, electricity and broadband based on the space and time used for work. Keep records to support whichever method you use.
Should I set up a limited company as a freelancer?
No fixed figure decides it. Your profit, how much you draw, your other income, pension plans and the extra running costs of a company all change the answer. Get advice based on your own figures before you switch.
Tax as a freelancer is manageable once you know the rules and keep on top of your records. If you would rather focus on your work and leave the numbers to someone else, NDCA works with freelancers and consultants across the UK.
