How Your Self Assessment Bill Is Calculated
Your Self Assessment tax bill has two main components: income tax and Class 4 National Insurance. Both are calculated on your net profit — income minus allowable business expenses. Income tax uses the banded rates (0%, 20%, 40%, 45%) applied to profit above the personal allowance. Class 4 NI applies at 9% on profit between £12,570 and £50,270 and 2% above.
Class 2 NI (£179.40 flat for 2025/26 if profits exceed £12,570) is added to give your total NI liability. Combined, this is your tax return bill — which must be paid by 31 January following the end of the tax year.
Understanding Payments on Account
If your Self Assessment bill exceeds £1,000, HMRC requires advance payments (payments on account) towards next year's liability. Each payment is 50% of the previous year's bill. The first payment is due on 31 January (same day as the previous year's balance) and the second on 31 July.
In your second year of self-employment, your January payment therefore includes: the 2024/25 balance + 50% of the 2024/25 bill as a payment on account for 2025/26. Planning for this in advance prevents January cash-flow shocks.
Planning Ahead with a Tax Calculator
Using a tax calculator throughout the year — rather than just before the January deadline — allows you to set aside the right proportion of each invoice payment. A common rule of thumb is to put aside 25–35% of every payment into a dedicated savings account, adjusting based on your calculated effective rate. Use our freelancer tax calculator to get a more precise estimate based on your actual income and expenses.