How Self Assessment tax is calculated, step by step

Updated 26 July 2026 · 9 min read

A Self Assessment tax bill looks intimidating until you see the order it's built in. HMRC follows the same seven steps every time, whether you earn £20,000 or £200,000. Once you know the sequence, the SA302 stops being a mystery and becomes something you can check yourself. This walkthrough uses England and Northern Ireland rates.

1. Add up your total income

Everything taxable goes in: self-employment profit (after allowable expenses), employment salary, rental profit, dividends, savings interest and any other taxable income. This is your total income received: the first line on an SA302.

2. Take off your Personal Allowance

Most people can earn a slice tax-free. The Personal Allowance is £12,570 and has been frozen at that level through to 2025-26. There's a catch for higher earners: once your income passes £100,000, the allowance shrinks by £1 for every £2 over the line, and disappears completely at £125,140. That's the £100k taper, and it creates a nasty 60% effective rate in between.

3. Find your taxable income

Total income minus your allowance gives the total income on which tax is due. This is the number the tax bands are applied to, not your gross income.

4. Apply the tax bands

Your taxable income is sliced into bands, and each slice is taxed at its own rate. For 2024-25 and 2025-26 the bands are:

The important thing: moving into the higher rate doesn't mean all your income is taxed at 40%. Only the part that falls inside that band is. An SA302 shows each band on its own line with the amount and rate, which is why the calculation looks longer than a single sum.

5. Handle dividends and savings separately

Dividends and savings interest sit on top of your other income and have their own allowances and rates.

Dividends get a tax-free Dividend Allowance (£500 for 2024-25 and 2025-26, down from £1,000 and £2,000 in earlier years). Above that, dividends are taxed at 8.75% in the basic band, 33.75% in the higher band and 39.35% in the additional band, lower than the rates on earned income. See dividend tax by year.

Savings interest gets a Personal Savings Allowance of £1,000 for basic-rate taxpayers, £500 for higher-rate and nothing for additional-rate. There's also a £5,000 starting rate for savings that helps people with low earned income. More in tax on savings interest.

6. Add National Insurance

If you're self-employed, two classes of National Insurance sit alongside your Income Tax:

• Class 4 is a percentage of your profit. For 2024-25 and 2025-26 it's 6% on profit between £12,570 and £50,270, then 2% on anything above £50,270.
• Class 2 used to be a small flat weekly charge. From 2024-25 it's no longer required for most self-employed people. If your profit is above the small profits threshold, it's treated as paid.

Our Class 2 and Class 4 guide covers this in full, including how the rates changed across recent years.

7. Total it up

Add the Income Tax and the National Insurance together and you have the bill: the "Income Tax and Class 4 National Insurance contributions due" line at the bottom of the SA302.

A worked example

Take a sole trader with £60,000 of self-employment profit and nothing else, for 2025-26:

• Total income: £60,000. Personal Allowance: £12,570 (income is under £100k, so no taper). Taxable income: £47,430.
• Income Tax: £37,700 × 20% = £7,540, then £9,730 × 40% = £3,892. Total Income Tax: £11,432.
• Class 4 NI: (£50,270 − £12,570) × 6% = £2,262, then (£60,000 − £50,270) × 2% = £194.60. Total Class 4: £2,456.60.
• Class 2: treated as paid, £0.
• Total due: £13,888.60.

Plug the same £60,000 into the estimator and you'll get the same breakdown, band by band. Change the year to 2023-24 and the National Insurance rises, because Class 4 was 9% that year rather than 6%, a good illustration of why each year needs its own figures.