Budget 2026 Tax Changes for self-employed

The Autumn Budget 2026 includes several changes that could affect sole traders and self-employed people, from business mileage and tax allowances to reporting requirements and future support for eligible parents.

If you run your own business, understanding what has changed and when the new rules take effect can help you plan your tax payments, manage cash flow and keep your business finances organised.

In this guide, Accounting Solutions Manchester explains the key tax changes for the self-employed following the Autumn Budget 2026.

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Other Budget Articles of Interest

For the wider picture, read our Autumn Budget 2026 guide to the key changes for businesses.

If you are considering whether to incorporate your business, our guide to Budget 2026 tax changes for limited companies covers the announcements affecting limited companies.

Landlords can also read our separate guide to Budget 2026 tax changes for rental income.

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Income Tax for Sole Traders in 2026/27

Sole traders pay Income Tax on their taxable business profits, rather than their total turnover. Taxable profit is generally calculated by deducting allowable business expenses from business income.

For the 2026/27 tax year, the main Income Tax rates for taxpayers in England, Wales and Northern Ireland remain:

• Personal Allowance: £12,570, subject to eligibility.
• Basic rate: 20% on taxable income up to £50,270.
• Higher rate: 40% on taxable income between £50,271 and £125,140.
• Additional rate: 45% on taxable income above £125,140.

Your Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000. It is normally fully withdrawn once adjusted net income reaches £125,140.

The existing freeze on the main Income Tax thresholds remains important for self-employed people. As profits rise, more income can fall into higher tax bands, even where the increase in earnings does not represent a similar increase in spending power.

It is important to remember that your final tax bill depends on your overall taxable income, not simply the profit from your business. Employment income, rental income, pensions and other taxable income can also affect your position.

National Insurance for the Self-Employed

Self-employed people may also have to pay Class 4 National Insurance contributions on their business profits.

For the 2026/27 tax year, the main Class 4 rates are:

• 6% on profits above £12,570 up to £50,270.
• 2% on profits above £50,270.

Class 2 National Insurance contributions are no longer normally payable as a compulsory weekly contribution. Where eligible, people with profits of at least £7,105 can receive National Insurance credits to protect their contribution record without making a payment. Voluntary Class 2 contributions may be available to people with lower profits.

Your National Insurance position will depend on your profits and individual circumstances, so it is worth checking your position when preparing your Self Assessment tax return.

Business Mileage: Higher Rates Confirmed

One of the important changes for self-employed people concerns the simplified mileage rates used when calculating business motoring expenses.

For cars and goods vehicles, the mileage rates for the 2026/27 tax year are:

• 55p per business mile for the first 10,000 miles.
• 25p per business mile for each additional mile above 10,000.

The increase to 55p for the first 10,000 miles took effect from 6 April 2026. The Budget announcement confirmed that this higher rate will continue, with the rate for business miles above 10,000 increasing to 35p.

The revised rate above 10,000 business miles is a change to be factored into future mileage claims. Check the effective date and detailed HMRC guidance before applying it to a particular accounting period.

These simplified mileage rates can be used instead of claiming the actual motoring costs and capital allowances for the relevant vehicle. The method chosen generally has to continue for as long as that vehicle is used in the business.

If you use your own vehicle for business, keeping an accurate mileage log is essential. Record the date, destination, business purpose and miles travelled so your claim can be supported if HMRC asks for evidence.

Making Tax Digital for Income Tax

Making Tax Digital (MTD) for Income Tax is a significant change for many sole traders and landlords. The rollout has already started, and the Budget does not mean that affected taxpayers can ignore their existing start dates.

The current timetable is:

• From 6 April 2026: qualifying income above £50,000.
• From 6 April 2027: qualifying income above £30,000.
• From April 2028: qualifying income above £20,000.

The thresholds are based on qualifying income from self-employment and property, before expenses are deducted, rather than business profit alone.

If you fall within MTD, you will generally need to use compatible software to keep digital records and send quarterly updates to HMRC. You will also need to complete the relevant year-end process and tax return.

Quarterly updates are not four additional tax returns. However, they do mean that your bookkeeping needs to be kept up to date throughout the year.

If your qualifying income means you will join MTD in April 2027, now is a good time to review your bookkeeping system, choose suitable software and discuss how the new process will work with your accountant.

Exemptions can apply in certain circumstances, including where someone meets HMRC’s digital exclusion criteria.

Trading Allowance and Business Expenses

The trading allowance can be relevant to people with smaller amounts of qualifying trading income. Under the existing rules, the allowance is generally £1,000 a tax year.

The Budget announced an increase in the trading allowance to £3,000 from 6 April 2027. This is an allowance for individuals with qualifying trading income; it does not mean that a sole trader can automatically deduct £3,000 in addition to their normal business expenses.

Where your allowable expenses exceed the available allowance, claiming actual expenses may be more beneficial. The right approach depends on the level and nature of your income and costs.

Common allowable business expenses can include:

• Office costs and business stationery.
• Business insurance and professional fees.
• Accountancy fees.
• Software and subscriptions used for the business.
• Qualifying travel and business mileage.
• Business premises costs.
• Relevant equipment and other qualifying purchases, subject to the capital allowance rules.

Expenses must have a genuine business purpose and meet the relevant tax rules. Personal costs cannot simply be claimed because they were paid from a business bank account.

Capital Allowances and Equipment Purchases

If you are planning to invest in equipment, machinery or other business assets, the capital allowance rules can affect when you receive tax relief.

The Budget includes changes to the rates and reliefs available for certain qualifying capital expenditure. The treatment depends on the type of asset, when the expenditure is incurred and whether the business is eligible for a particular allowance.

Before making a significant purchase, consider:

• Whether the item qualifies for capital allowances.
• Whether a first-year allowance or another form of accelerated relief is available.
• Whether the expenditure falls within the relevant effective dates.
• The effect of the purchase on cash flow as well as taxable profits.

Tax relief should not be the only reason for purchasing equipment. The investment should make commercial sense for your business, and the precise tax treatment should be checked before committing to a major purchase.

Support for Eligible Self-Employed Parents

The Budget also announced plans to introduce a new Parental Allowance from April 2029 for eligible self-employed fathers, partners and adopters in Great Britain.

The proposed support is intended to extend parental pay to people who meet the relevant work and earnings-history requirements. Some recently employed or unemployed people, and those with irregular working patterns, may also qualify if they meet the conditions.

Detailed eligibility rules will be confirmed in due course. This is a future measure rather than a payment that self-employed people can claim immediately.

What Should Self-Employed People Do After the Budget?

The Budget does not change every aspect of how a sole trader pays tax. The practical priority is to understand which measures apply to you and when they take effect.

We recommend that self-employed people:

1. Review your expected profits. Estimate your taxable profits for the current tax year and consider how other income may affect your tax bands.
2. Put money aside for tax. Plan for Income Tax and National Insurance payments rather than waiting until your Self Assessment deadline.
3. Keep accurate records. Record income, expenses, receipts and business mileage throughout the year.
4. Prepare for Making Tax Digital. Check whether your qualifying income brings you within the rules and when you must start.
5. Review planned investments. Check the relevant capital allowance rules before purchasing expensive equipment or machinery.
6. Check your business structure. If your profits are increasing, it may be worth reviewing whether remaining a sole trader or operating through a limited company is more suitable for your circumstances.