PAYE vs Self-Employed in 2026/27: What Do You Need to Earn?
Updated for the 2026/27 UK tax year
Introduction
Comparing a PAYE salary with self-employed income is not as simple as comparing the headline numbers.
Employees normally pay Income Tax and Class 1 National Insurance through payroll. Sole traders usually pay Income Tax and Class 4 National Insurance based on taxable business profit.
That means £40,000 of PAYE salary and £40,000 of self-employed profit do not produce exactly the same take-home pay — and neither figure tells the whole story about the value of employment or self-employment.
Calculate your own PAYE vs self-employed equivalent
Enter your actual pay, tax code, pension and student-loan details to compare your PAYE result with an estimated self-employed equivalent.
Use the PAYE Calculator
The short answer
For a straightforward tax-only comparison, a self-employed person can sometimes need slightly less taxable profit than the equivalent PAYE salary to achieve the same take-home pay.
One reason is National Insurance. For 2026/27, a standard PAYE employee generally pays Class 1 National Insurance at 8% between the main thresholds and 2% above the upper threshold.
A self-employed sole trader generally pays Class 4 National Insurance at 6% between £12,570 and £50,270 and 2% above £50,270.
However, this does not mean self-employment is automatically financially better. A PAYE employee may also receive paid holiday, employer pension contributions, sick pay and other benefits that a self-employed worker must fund themselves.
PAYE vs self-employed equivalent take-home
PAYE Salary | Estimated PAYE Take-Home | Self-Employed Profit Needed for Similar Take-Home
£30,000 | £25,119.60 | £29,528.92
£40,000 | £32,319.60 | £39,258.65
£50,000 | £39,519.60 | £48,988.38
£60,000 | £45,357.40 | £58,700.00
£80,000 | £56,957.40 | £78,700.00
These examples assume a standard Personal Allowance, England/Wales/Northern Ireland Income Tax rates, standard employee National Insurance, no pension contributions and no student-loan deductions.
The self-employed figure is taxable business profit, not turnover.
Scottish Income Tax rates are different, so Scottish taxpayers can receive different results.
Self-employed profit is not the same as turnover
This distinction matters.
For a sole trader:
Business profit = turnover − allowable business expenses
If someone needs £40,000 of taxable profit and has £6,000 of allowable annual business expenses, they may need approximately £46,000 of turnover before those expenses.
The PAYE Calculator’s self-employed comparison lets you enter annual business expenses so that it can estimate both required profit and required turnover.
PAYE Calculator
Example: £40,000 PAYE salary vs self-employed
Consider an employee earning £40,000 a year under standard 2026/27 assumptions.
Estimated Income Tax:
£5,486.00
Estimated employee National Insurance:
£2,194.40
Estimated annual take-home:
£32,319.60
To produce approximately the same take-home under the simplified self-employed calculation, taxable self-employed profit would need to be around:
£39,258.65
This is slightly below the £40,000 PAYE salary because the Class 4 National Insurance rate applying to most of this income is lower than the standard employee Class 1 rate.
But this is only a tax comparison.
Why £40,000 self-employed is not the same as a £40,000 salary
A PAYE salary can include financial value that does not appear in take-home-pay calculations.
Depending on the job, an employee may receive:
• paid annual leave
• paid bank holidays
• employer pension contributions
• sick pay
• parental leave
• workplace benefits
• equipment supplied by the employer
• training
• greater income predictability
A self-employed person may instead need to pay for:
• unpaid holidays
• periods without client work
• pension contributions
• insurance
• accountancy or bookkeeping
• software
• equipment
• travel
• training
• professional fees
Because of this, the self-employed profit required to match PAYE take-home should not be treated as the freelance rate required to match the entire employment package.
National Insurance: PAYE vs self-employed
For 2026/27, most standard employees pay Class 1 National Insurance at:
• 8% between the Primary Threshold and Upper Earnings Limit
• 2% above the Upper Earnings Limit
For self-employed people paying Class 4 National Insurance:
• 6% applies to profits between £12,570 and £50,270
• 2% applies above £50,270
This difference is one reason a simple tax-only self-employed equivalent can be slightly lower than the PAYE gross salary.
What about Class 2 National Insurance?
For 2026/27, most self-employed people with profits above the relevant threshold do not pay a normal mandatory Class 2 charge.
People with lower profits may choose to make voluntary Class 2 contributions in some circumstances to protect their National Insurance record.
Class 2 is therefore not deducted from the main ToolNest PAYE vs self-employed comparison.
When will your result be different?
Your actual comparison can change substantially if you have:
• a different tax code
• Scottish Income Tax
• pension contributions
• salary sacrifice
• Student Loan repayments
• a Postgraduate Loan
• business expenses
• income above £100,000
• more than one source of income
• benefits in kind
• irregular earnings
For a personalised estimate, use the PAYE Calculator rather than relying only on the example table.
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PAYE vs Self-Employed FAQs
Is £40,000 self-employed better than a £40,000 salary?
Not necessarily. A self-employed person may have slightly different tax and National Insurance deductions, but PAYE employment can include paid holiday, pension contributions, sick pay and other benefits. Compare both take-home pay and the wider employment package.
Do self-employed people pay less National Insurance?
For 2026/27, the main Class 4 self-employed rate is 6% between £12,570 and £50,270, compared with the standard employee Class 1 rate of 8% between the main employee thresholds. Different rules and circumstances can apply.
Should I compare salary with self-employed turnover?
No. The closer comparison is usually PAYE salary against self-employed taxable profit. Turnover is the money received before allowable business expenses are deducted.
Do self-employed people get a Personal Allowance?
Yes, subject to the normal eligibility and income rules. The standard Personal Allowance for 2026/27 is £12,570.
Does ToolNest include business expenses?
The PAYE Calculator includes an optional annual business-expenses field in its self-employed comparison. It uses this to estimate the turnover needed to produce the required taxable profit.
Does this include paid holiday and pension benefits?
No. The numerical comparison focuses primarily on tax and take-home pay. Paid holiday, employer pension contributions and other employment benefits need to be considered separately.