When you work for yourself, nobody takes tax out of your pay. Instead, you add up your income and expenses for the tax year, work out your profit, and pay Income Tax and National Insurance on that profit through Self Assessment, usually many months later. Getting the amount right, and having it ready, is one of the main money skills of being self-employed.
This guide covers sole traders for the 2026/27 tax year (6 April 2026 to 5 April 2027), using HMRC’s published rates. The self-employed tax calculator works out your own bill and how much to put aside each month.
The short version
- You pay Income Tax on your profit at the same rates as an employee, after the Personal Allowance of £12,570.
- You pay Class 4 National Insurance of 6% on profit between £12,570 and £50,270, and 2% above.
- A sole trader with £35,000 of profit owes £5,832 for the year.
- The bill for 2026/27 is due by 31 January 2028, often with a first payment towards the next year.GOV.UK
£5,832
- Income Tax
- £4,486
- Class 4 NI
- £1,345.80
- Class 2 NI
- £0.00
- Student loan
- £0
- Taxable profit
- £35,000
- Profit after tax and NI
- £29,168
- Per month
- £2,431
- Set aside per month
- £486
- Share of profit
- 16.7%
- Profits are over £7,105, so Class 2 is treated as paid and counts towards your State Pension at no cost.
- Setting aside about £486 a month covers this bill. Payments on account (two advance payments towards next year's bill) are not included.
- Assumes self-employment is your only income. Employment income, dividends or rent would change the bands.
Tax and NI to pay: £5,832 for 2026/27 on £35,000 profit
Show the breakdown
| Line | Year | Month |
|---|---|---|
| Income (turnover) | £40,000 | £3,333 |
| Allowable expenses | £5,000 | £417 |
| Taxable profit | £35,000 | £2,917 |
| Income Tax (England & Northern Ireland) | £4,486 | £374 |
| Class 4 National Insurance | £1,346 | £112 |
| Profit after tax and NI | £29,168 | £2,431 |
- Kept£29,16883%
- Income Tax£4,48613%
- Class 2 and 4 NI£1,3464%
What you pay tax on
Your taxable profit is your business income (turnover) minus your allowable expenses. Allowable expenses are costs you incur wholly for the business: stock and materials, business travel, insurance, a share of phone and broadband, accountancy fees, advertising and so on. Personal spending and the private share of anything you use for both are not allowable.GOV.UK
If your expenses are small, you can claim the trading allowance of £1,000 instead. If your gross trading income is no more than the allowance, it is tax-free and you usually don’t need to tell HMRC. Above that, you can deduct the allowance from your income in place of your actual expenses, but not both.GOV.UK
For example, with £3,000 of side-hustle income and only £400 of costs, using the allowance leaves a taxable profit of £2,000. If your costs were higher than the allowance, claiming them would be better.
Income Tax on your profit
Profit is added to any other income you have, such as a salary or pension, and taxed through the same bands as wages. In England, Wales and Northern Ireland that means 20%, 40% and 45%. If you live in Scotland, the six Scottish rates apply to your profit, from 19% to 48%.HMRC
If you have a job as well, your Personal Allowance and lower bands are usually used up by your salary first, so more of your profit is taxed at your highest rate. The Income Tax bands guide explains how the bands work, including the Personal Allowance taper on high incomes.
Class 4 National Insurance
Class 4 is the self-employed version of the National Insurance an employee pays. It is charged on your profit for the year, not week by week, and it is collected with your Income Tax.
| Profit band | Class 4 rate |
|---|---|
| Up to £12,570 | Nothing |
| £12,570 to £50,270 | 6% |
| Over £50,270 | 2% |
The limits line up with the Personal Allowance and the higher-rate threshold, so a basic-rate sole trader pays the main rate of Class 4 on every pound of profit that is also taxed at the basic rate.HMRC
Class 2 and your State Pension
Self-employed people no longer have to pay Class 2 National Insurance. If your profit is at least the small profits threshold of £7,105, you are treated as having paid it, and the year counts towards your State Pension without costing you anything.
If your profit is below that, you can choose to pay voluntary Class 2 at £3.65 a week to keep your National Insurance record complete. Over a full year that comes to £189.80, a small price for a qualifying year of State Pension. You can check your record in your HMRC online account.GOV.UK
The bill at common profit levels
For a sole trader in England with no other income and no student loan, the 2026/27 bill looks like this:
| Profit | Income Tax | Class 4 NI | Total | Left after tax |
|---|---|---|---|---|
| £20,000 | £1,486 | £445.80 | £1,932 | £18,068 |
| £30,000 | £3,486 | £1,045.80 | £4,532 | £25,468 |
| £40,000 | £5,486 | £1,645.80 | £7,132 | £32,868 |
| £50,000 | £7,486 | £2,245.80 | £9,732 | £40,268 |
| £60,000 | £11,432 | £2,456.60 | £13,889 | £46,111 |
| £80,000 | £19,432 | £2,856.60 | £22,289 | £57,711 |
A worked example
Say you are a self-employed designer in England with £45,000 of income in 2026/27 and £5,000 of allowable expenses. Your profit is £40,000 and your total bill is £7,132:
| Line | Year | Month |
|---|---|---|
| Income (turnover) | £45,000 | £3,750 |
| Allowable expenses | £5,000 | £417 |
| Taxable profit | £40,000 | £3,333 |
| Income Tax (England & Northern Ireland) | £5,486 | £457 |
| Class 4 National Insurance | £1,646 | £137 |
| Profit after tax and NI | £32,868 | £2,739 |
Living in Scotland changes only the Income Tax part: the same business would owe £7,197. With a Plan 2 student loan, HMRC adds a repayment of £955 to the Self Assessment bill. The student loan repayments guide explains how that is worked out.
Employed vs self-employed on the same money
On the same £35,000, a sole trader and an employee pay the same Income Tax, but different National Insurance:
| £35,000 a year | Income Tax | National Insurance |
|---|---|---|
| Employee (paid monthly) | £4,486 | £1,794 |
| Sole trader (profit) | £4,486 | £1,345.80 |
The self-employed pay less National Insurance because the Class 4 main rate of 6% is lower than the employee rate of 8%. And there is no employer paying 15% on top. The trade-off is no sick pay, holiday pay or employer pension, and you carry the cost of your own equipment and quiet months. The National Insurance guide compares the two systems in more detail.
Paying the bill
Sole traders report their profit on a Self Assessment tax return. If you have not filed before, you need to register by 5 October after the end of the tax year you started trading in.GOV.UK The key dates for 2026/27 are:GOV.UK
- 31 January 2028: online return due, and the balance of tax for 2026/27 must be paid.
- 31 January 2028 and 31 July 2028: payments on account towards your 2027/28 bill, if you need to make them.
Payments on account catch out many people in their second year. Each one is usually half of the previous year’s bill, including Class 4, so the first January can mean paying a full year’s tax plus half of the next. You don’t have to make them if last year’s bill was small or most of your tax was already collected through a tax code. Student loan repayments are not included in payments on account; they are added to the January balancing payment.GOV.UK
If your qualifying income is above HMRC’s threshold, you also have to keep digital records and send quarterly updates under Making Tax Digital for Income Tax. The threshold is coming down over the next few years, so more sole traders will be brought in.GOV.UK
Mistakes to avoid
- Forgetting payments on account. Budget for them from your first profitable year, not when the January bill arrives.
- Mixing business and personal money. A separate bank account for the business makes your records and your expense claims far easier to defend.
- Claiming the trading allowance and expenses together. It is one or the other for the same trade.
- Registering late. Missing the October registration deadline can lead to a penalty if your tax is then paid late.
- Leaving out other income. Your salary, rental profit, dividends and savings interest all go on the same return and can push your profit into a higher band.
- Overlooking your student loan. If you have one, the repayment is part of the January bill, on top of your tax.
How much to set aside
The simplest habit is to move a fixed amount into a separate savings account every month. For the £45,000 income example above, the calculator suggests setting aside £594 a month, which covers the Income Tax and Class 4 for the year. If you are in your first year of trading, put aside more: payments on account mean the first January bill can be much bigger than the second.
If your profit is growing, a limited company may become worth considering. The salary vs dividends guide explains how directors pay themselves, and the VAT calculator helps if your turnover brings you close to VAT registration. For the bigger picture on tax and pay, see the UK take-home pay guide.
Figures on this page are worked out from 2026/27 rates published by HMRC and GOV.UK. They assume one tax year of steady trading and are estimates, not tax advice.
