Question 1

What is Class 4 National Insurance for the self-employed?

Accepted Answer

Class 4 National Insurance is the main NI contribution paid by self-employed individuals on their taxable profits. For 2026/27, you pay 6% on profits between the Lower Profits Limit of £12,570 and the Upper Profits Limit of £50,270, and 2% on any profits above £50,270. Class 4 NI is calculated and paid through your Self Assessment tax return along with your Income Tax — there is no separate payment process. It is different from Class 2 NI, which was previously a flat weekly charge for the self-employed; Class 2 was abolished from April 2024. Class 4 NI does not directly build entitlement to State Pension — your State Pension entitlement as a self-employed person is based on National Insurance credits, which are granted when your profits exceed the Small Profits Threshold.

Question 2

What counts as an allowable business expense for self-employed people?

Accepted Answer

An allowable business expense is one incurred wholly and exclusively for your trade. For self-employed individuals, common allowable expenses include the cost of goods bought for resale, tools and equipment used for work, business insurance, professional subscriptions and memberships, accountancy and bookkeeping fees, business premises costs such as rent and utilities, vehicle costs for business use (either actual costs apportioned to business use, or the flat-rate mileage allowance of 45p per mile for the first 10,000 miles), advertising and marketing, and training that maintains or improves existing skills required for your trade. The use of home as an office can be claimed either using HMRC's flat rate allowance or by calculating the actual proportion of household costs attributable to business use. Costs that are not wholly for business — such as a meal with a personal element, or clothing that could be worn outside work — are generally not allowable.

Question 3

What is the CIS scheme and how does it affect my tax bill?

Accepted Answer

The Construction Industry Scheme (CIS) requires contractors in the construction industry to deduct tax at source from payments made to subcontractors. The standard CIS deduction rate is 20% for registered subcontractors, or 30% for those not registered. These deductions are not a final tax payment — they are advance payments against your Self Assessment liability. When you complete your annual tax return, the total CIS deducted is offset against your Income Tax and National Insurance bill. If more CIS was deducted than you owe in tax, HMRC will issue a refund. If less was deducted, you pay the balance. Entering your CIS deduction in this calculator shows your net tax position after the advance payments are taken into account.

Question 4

How is rental income taxed for a self-employed person?

Accepted Answer

Rental income from UK property is taxed as a separate income source from self-employment profits and is not subject to National Insurance. Your rental profit — income minus allowable property expenses such as letting agent fees, repairs and maintenance, insurance, and ground rent — is added to your other income and taxed at whatever band the combined total falls into. Unlike self-employment income, you cannot claim the Personal Allowance solely against rental profits if it has already been used by other income — the allowance is applied in the most tax-efficient order, which is against non-savings income first, then savings, then dividends. If you own a property jointly with a spouse or civil partner, rental profits are normally split 50:50 by default, though a different split can be declared using HMRC Form 17 if you own unequal shares.

Question 5

Do I pay tax on bank interest and dividends as a self-employed person?

Accepted Answer

Yes, but with some important allowances. For bank and savings interest, you have a Personal Savings Allowance of £1,000 per year if you are a basic rate taxpayer, £500 if you are a higher rate taxpayer, and nil if you are an additional rate taxpayer. Interest above your allowance is taxed at your marginal income tax rate — 20%, 40%, or 45%. For dividends, the Dividend Allowance is £500 per year for 2026/27. Dividends above this allowance are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) — these are lower rates than income tax because Corporation Tax has already been paid on company profits before dividends are declared. Both interest and dividends must be reported on your Self Assessment return if they exceed the respective allowances.

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Self Employment Tax

SELF-EMPLOYED & INDIVIDUAL

Self Employed & Rental Tax Calculator — UK 2026/27

ABOUT SELF EMPLOYMENT

What is Class 4 National Insurance for the self-employed?

What counts as an allowable business expense for self-employed people?

What is the CIS scheme and how does it affect my tax bill?

How is rental income taxed for a self-employed person?

Do I pay tax on bank interest and dividends as a self-employed person?