How tax works when you are employed and self-employed
Having a job and a side business does not give you two tax-free allowances. HMRC combines your taxable employment income, taxable benefits, self-employed profit and other taxable income before applying one Personal Allowance.
For the 2026/27 tax year, from 6 April 2026 to 5 April 2027, the standard Personal Allowance is £12,570, according to GOV.UK. It is reduced by £1 for every £2 of adjusted net income above £100,000 and is normally lost completely at £125,140.
Your employer continues deducting PAYE tax and employee National Insurance from your wages. You usually report your business income and allowable expenses through Self Assessment, where HMRC accounts for tax already deducted under PAYE.
Warning: calculate tax using business profit, not turnover. Profit is generally your trading income after allowable business expenses; taking drawings from the business does not reduce taxable profit.
If fluctuating earnings affect your household support, use SupportFund’s benefits calculator guide alongside your tax estimate. Universal Credit uses different reporting and expense rules from HMRC, so a tax calculation should not be treated as a Universal Credit assessment.
2026/27 Income Tax and National Insurance rates
The following figures apply to most taxpayers in England, Wales and Northern Ireland for 2026/27. GOV.UK confirms that Scottish taxpayers pay Scottish Income Tax rates on earnings and self-employed profits, although UK-wide rules continue to apply to National Insurance and the Personal Allowance.
| Charge | 2026/27 band or threshold | Rate |
|---|---|---|
| Income Tax: Personal Allowance | Up to £12,570 | 0% |
| Income Tax: basic rate | £12,571 to £50,270 | 20% |
| Income Tax: higher rate | £50,271 to £125,140 | 40% |
| Income Tax: additional rate | Above £125,140 | 45% |
| Employee Class 1 National Insurance | £12,570 to £50,270 a year | 8% |
| Employee Class 1 National Insurance | Above £50,270 a year | 2% |
| Self-employed Class 4 National Insurance | £12,570 to £50,270 profit | 6% |
| Self-employed Class 4 National Insurance | Above £50,270 profit | 2% |
The Income Tax bands and Class 1 and Class 4 National Insurance rates in this table are the GOV.UK and HMRC figures applying from 6 April 2026. National Insurance is not calculated by simply adding salary and profit together: Class 1 applies to employment earnings, while Class 4 applies to self-employed profits.
Class 2 National Insurance is no longer a compulsory weekly charge for self-employed people with profits at or above HMRC’s applicable Small Profits Threshold; qualifying contributors are generally treated as having paid it. People below that threshold may be able to pay voluntary Class 2 contributions to protect their National Insurance record, subject to HMRC eligibility rules.
Scottish taxpayer? Do not use the England, Wales and Northern Ireland Income Tax bands as your final answer. Check the current Scottish bands on GOV.UK or use HMRC-compatible software, because the point at which your self-employed profit enters a higher Scottish rate can differ.
How to calculate your combined 2026/27 tax
A reliable calculation starts with annual figures covering the same tax year. Do not compare a monthly payslip with a full-year profit forecast without converting both to the period from 6 April 2026 to 5 April 2027.
- Add taxable income: combine taxable salary, taxable employment benefits, self-employed profit and any other taxable income.
- Apply the Personal Allowance: deduct the allowance available after any reduction for income above HMRC’s adjusted-net-income limit.
- Calculate Income Tax: apply the relevant UK or Scottish bands to total taxable income.
- Calculate National Insurance separately: use Class 1 for employment earnings and Class 4 for self-employed profits.
- Deduct PAYE tax already paid: use the year-to-date tax shown on your P60 or final payslip, not your total payroll deductions.
- Add other Self Assessment liabilities: these can include student loan repayments, High Income Child Benefit Charge or tax on dividends and savings.
Worked example
Suppose an England-based taxpayer receives a £30,000 salary and makes a £20,000 self-employed profit in 2026/27, with no other income or adjustments. Applying HMRC’s £12,570 Personal Allowance and 20% basic rate gives estimated Income Tax of £7,486 on combined taxable income of £37,430.
Using GOV.UK’s 2026/27 rates, estimated employee Class 1 National Insurance is £1,394.40 and estimated Class 4 National Insurance is £445.80. PAYE Income Tax already deducted from the salary would then be credited against the Self Assessment bill; this simplified example excludes pension contributions, benefits in kind, student loans, savings and payments on account.
Set aside money as profit arrives rather than waiting for the return deadline. SupportFund’s household budget planner guidance can help separate tax reserves from rent, food and energy spending.
Self Assessment bills can include payments on account
Your first Self Assessment bill can be larger than the tax attributable to one year because HMRC may request advance payments towards the following year. Under HMRC rules, payments on account normally apply where the previous year’s Self Assessment liability is at least £1,000 and less than 80% of the relevant tax was collected outside Self Assessment.
Each payment is normally half of the previous year’s qualifying liability. HMRC states that the usual due dates are 31 January during the tax year and 31 July after it, with any balancing payment also due on the following 31 January.
You can ask HMRC to reduce payments on account if you reasonably expect your next bill to be lower. If the reduction is excessive, HMRC can charge interest on the underpaid amount, so retain evidence supporting your revised profit forecast.
Cash-flow tip: PAYE deducted by an employer does not necessarily prevent payments on account. Check the actual Self Assessment calculation before committing money elsewhere, particularly if your business profit has risen or your tax code collected too little.
If a bill is already unaffordable, contact HMRC promptly about payment support rather than ignoring the deadline. For wider priority debts and household pressures, see SupportFund’s debt help guidance.
Records, filing deadlines and Making Tax Digital
Keep invoices, expense receipts, bank records, mileage evidence and details of business-use adjustments. You should also retain your P60, P45 where relevant, payslips and P11D so that PAYE income, benefits and tax deductions match HMRC’s records.
HMRC states that online Self Assessment returns are normally due by 31 January following the end of the tax year, while paper returns are normally due by 31 October. Tax for 2026/27 is therefore normally reported online and paid by 31 January 2028, subject to HMRC’s filing rules and any payments on account.
Making Tax Digital for Income Tax began on 6 April 2026 for qualifying sole traders and landlords whose qualifying income exceeded £50,000 in 2024/25, according to HMRC. HMRC says the threshold extends to qualifying income above £30,000 from 6 April 2027; qualifying income is tested using gross self-employment and property income rather than taxable profit.
A calculator provides an estimate, not a substitute for a filed return or regulated tax advice. Before acting, confirm current rates, thresholds and deadlines on GOV.UK, particularly if you are a Scottish taxpayer, have multiple jobs, claim trading losses or receive dividends, property income or Child Benefit.