How is commission-only self-employed income taxed in the UK?

Full answer

Some self-employed people -- particularly in sales, recruitment, insurance broking, and some financial services roles -- are paid purely on commission, with no base salary at all. For tax purposes, this income is treated no differently from any other form of self-employed trading profit. **How commission income is taxed** All commission received in the tax year (gross, before any deductions) is added together as your trading income. From this, you deduct allowable business expenses -- for example, travel to see clients, a proportion of home-working costs, marketing materials, professional indemnity insurance, and subscriptions to relevant professional bodies -- to arrive at your taxable profit. This profit is then taxed at your marginal Income Tax rate: 0% within the £12,570 Personal Allowance, 20% between £12,571 and £50,270, 40% between £50,271 and £125,140, and 45% above that for 2026/27. **Class 4 and Class 2 National Insurance** Self-employed commission earners also pay Class 4 National Insurance on their profits: 6% on profits between £12,570 and £50,270, and 2% on profits above that. Class 2 NI, which historically protected State Pension entitlement, is now voluntary at £3.45 a week (2026/27) for those with profits below the Small Profits Threshold who want to keep building qualifying years; above that threshold, Class 2 NI credits are given automatically without a separate payment. **Irregular income and payments on account** Commission-only earners often have highly variable monthly or annual income, which does not change the tax rates that apply but does affect cash flow planning: Self Assessment normally requires two payments on account (advance payments towards the following year's tax bill) based on the prior year's liability, which can feel disproportionate in a year where commission income falls sharply. It is possible to apply to reduce payments on account if you genuinely expect lower profits, though reducing them incorrectly can trigger interest charges if your actual profit turns out higher than estimated. **Employed vs self-employed commission** If you are technically an employee who happens to be paid entirely or mostly by commission (common in some retail and telesales roles), the tax treatment is different: commission is taxed through PAYE as ordinary earnings, with Income Tax and Class 1 employee National Insurance deducted automatically by your employer, rather than through Self Assessment. Whether you are employed or self-employed depends on your actual working relationship (control, mutuality of obligation, ability to send a substitute, and so on), not simply on how you are paid. **Worked example** A self-employed insurance broker earns £58,000 in commission over the tax year and has £8,000 of allowable expenses (mileage, phone, marketing, professional subscriptions), giving a taxable profit of £50,000. Income Tax on this is roughly £7,486 (20% on the amount between £12,570 and £50,000), and Class 4 NI is 6% on the amount between £12,570 and £50,000, around £2,246 -- a combined tax and NI liability of roughly £9,732, paid via two payments on account plus a balancing payment through Self Assessment by 31 January following the tax year end.

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