The Autumn Budget 2025 and subsequent April 2026 tax changes have several important implications for self-employed people. The most significant development is the launch of Making Tax Digital for Income Tax Self Assessment (MTD ITSA) from 6 April 2026, which changes how sole traders with income above £50,000 report to HMRC. There were no increases to Class 4 NIC rates in the Budget, but ongoing frozen thresholds are quietly increasing tax liabilities for many self-employed workers.
National Insurance for the self-employed in 2026/27
| NIC class | Rate 2025/26 | Rate 2026/27 | Threshold |
|---|---|---|---|
| Class 4 (main rate) | 6% | 6% | Profits £12,570 to £50,270 |
| Class 4 (upper rate) | 2% | 2% | Profits above £50,270 |
| Class 2 | Abolished | Abolished | No longer applies |
Class 2 NIC was abolished from April 2024. Self-employed people with profits above £6,845 receive a National Insurance credit without paying Class 2, protecting access to contributory benefits including the State Pension.
Frozen income tax thresholds
The personal allowance remains at £12,570 for 2026/27, with all income tax thresholds frozen until April 2031. For a self-employed person whose profits grow year on year, this means a larger proportion of income falls into taxable bands with each passing year, even without an explicit rate increase. This is fiscal drag in practice.
| Band | Rate | Threshold (frozen to 2031) |
|---|---|---|
| Personal allowance | 0% | Up to £12,570 |
| Basic rate | 20% | £12,571 to £50,270 |
| Higher rate | 40% | £50,271 to £125,140 |
| Additional rate | 45% | Above £125,140 |
MTD ITSA: what self-employed people need to do now
From 6 April 2026, self-employed people (sole traders) with total business income above £50,000 must join MTD ITSA. This replaces the annual Self Assessment return with:
- Four quarterly digital updates submitted to HMRC via compatible software
- An end-of-period statement at the end of the tax year
- A final declaration (replacing the Self Assessment return)
A soft landing applies for 2026/27: no penalty points will be issued for the first four missed quarterly updates. However, the annual final declaration still carries penalties if missed.
If your income is between £30,000 and £50,000, MTD ITSA applies from April 2027. If it is between £20,000 and £30,000, the start date is April 2028.
Class 2 NIC abolished
Class 2 NIC was abolished from April 2024. Prior to this, self-employed people paid a flat weekly Class 2 contribution. This is no longer applicable. State Pension entitlement is protected through the NIC credit system for those with profits above £6,845.
Capital allowances: what changed
For self-employed people who own plant, machinery, or vehicles in their business, the writing down allowance (WDA) on the main pool has fallen from 18% to 14% from 6 April 2026. A new 40% first-year allowance is now available for plant and machinery with an expected useful life of 25 years or less, offering faster relief in the year of purchase for qualifying assets.
Dividend tax if you also run a limited company
Many self-employed people also operate a limited company alongside sole trader activity, or transition between the two. If you receive dividend income from a company, be aware that dividend tax rates rose from April 2026. See our guide for limited company directors for full details.
What self-employed people should do before year end
- Check whether your gross income exceeds £50,000 and if so, register for MTD ITSA compatible software.
- Ensure your 2024/25 Self Assessment return is filed and any tax owed is paid.
- Consider timing any capital expenditure to maximise the new 40% first-year allowance.
- Review pension contributions: increasing contributions can reduce your taxable profits and lower your overall tax and NIC liability.