Your total business income before any expenses.
Business costs you can deduct (stock, travel, equipment, etc).
Income from employment or other sources that uses up your personal allowance and tax bands.
2026/27 tax rates at a glance
| Band | Taxable Income | Rate |
|---|---|---|
| Personal allowance | £0 - £12,570 | 0% |
| Basic rate | £12,571 - £50,270 | 20% |
| Higher rate | £50,271 - £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
National Insurance (self-employed)
| Class | Applies to | Rate |
|---|---|---|
| Class 2 | Profits of £7,105 or more | Treated as paid |
| Class 4 (lower) | £12,570 - £50,270 | 6% |
| Class 4 (upper) | Above £50,270 | 2% |
How sole trader tax works in 2026/27
As a sole trader, you pay income tax and National Insurance on your business profits. Your taxable profit is your turnover minus allowable expenses. If you also have employment or pension income, all your income sources are combined before applying tax bands.
Calculating your taxable profit
Only expenses incurred wholly and exclusively for business purposes can be deducted. Common examples include stock and materials, travel, marketing, professional subscriptions, accountancy fees, and a proportion of phone and internet costs.
Personal allowance taper
Everyone gets a £12,570 personal allowance (tax-free amount). However, if your total income exceeds £100,000, your personal allowance reduces by £1 for every £2 above that threshold. At £125,140, the personal allowance is zero. This creates an effective 60% tax rate on income between £100,000 and £125,140.
National Insurance for sole traders
You pay NI through your self-assessment return:
- Class 2: nothing to pay. With profits of £7,105 or more it is treated as paid; below that you can pay voluntary Class 2 at £3.65 a week to protect your State Pension record
- Class 4: 6% on profits between £12,570 and £50,270, plus 2% on profits above £50,270
Payments on account
If your Self Assessment bill, after tax already deducted at source such as PAYE, is £1,000 or more and no more than 80% of your total tax was deducted at source, HMRC will ask for payments on account. These are two advance payments (each 50% of your previous year's bill) due on 31 January and 31 July. In your first year of self-assessment, you may need to pay the full year's tax plus the first payment on account together on 31 January.
Worked examples for 2026/27
Each example was run through the calculator above with the inputs shown. They assume a taxpayer in England, Wales or Northern Ireland with a full £12,570 personal allowance, profits worked out on the cash basis, and no pension contributions, student loan or savings income.
Full-time sole trader: £45,000 turnover, £8,000 expenses
Profit is £37,000. Income Tax is £4,886.00 and Class 4 National Insurance £1,465.80, a total of £6,351.80. In the first year with a bill this size, the 31 January payment covers the full £6,351.80 plus a first payment on account of £3,175.90 towards the next year, so set aside more than the bill itself.
Side business alongside a £30,000 job
The job uses the personal allowance, so the whole £7,500 profit is taxed at 20%: £1,500.00. Class 4 is £0 because it is charged on self-employed profit alone, and this profit is under £12,570. As the profit is above £7,105, Class 2 is treated as paid, so the year still counts towards the State Pension. The bill is over £1,000, so two payments on account of £750.00 follow.
Higher rate: £90,000 turnover, £15,000 expenses
A £75,000 profit gives Income Tax of £17,432.00 and Class 4 of £2,756.60, with Class 4 dropping to 2% above £50,270. Take-home is £54,811.40. Making Tax Digital is based on turnover, not profit, so this business is well inside it (see below).
Rules that change the answer
National Insurance
For 2026/27, Class 4 is 6% on profits between £12,570 and £50,270 and 2% above. With profits of £7,105 or more, Class 2 is treated as paid at no cost. Below that you can choose to pay voluntary Class 2 at £3.65 a week to protect your record (GOV.UK: Self-employed National Insurance rates, checked 30 October 2026).
The trading allowance
If your gross trading income is £1,000 or less, you usually do not need to tell HMRC. Above that, you can deduct a flat £1,000 instead of your actual expenses, which helps only if your expenses are smaller (GOV.UK: tax-free allowances on property and trading income, checked 30 October 2026). Budget 2026 raises the allowance and the reporting threshold to £3,000 from 6 April 2027 (HMRC: Budget 2026 overview of tax legislation, checked 30 October 2026).
Making Tax Digital
Sole traders and landlords with qualifying income over £50,000 in 2024/25 must use Making Tax Digital from 6 April 2026, with quarterly updates through compatible software. The threshold drops to £30,000 (2025/26 income) from April 2027 and £20,000 (2026/27 income) from April 2028 (GOV.UK: Making Tax Digital for Income Tax, checked 30 October 2026).
Common mistakes
Reading the rates as separate “sole trader brackets”. Sole traders pay the same Income Tax bands as employees. The difference is National Insurance: Class 4 at 6% and 2% instead of employee Class 1.
Registering late. If you started trading in 2025/26, you must register for Self Assessment by 5 October 2026 or risk a penalty (GOV.UK: Register for Self Assessment, checked 30 October 2026).
Claiming mixed-use costs in full. Only the business share of a phone, car or home costs is allowable, and money taken out for personal use is never an expense (GOV.UK: expenses if you’re self-employed, checked 30 October 2026).
How this calculator works: it takes turnover less expenses as profit, lets any other income use the personal allowance and basic rate band first, then taxes the profit at 20%, 40% and 45%, tapering the allowance above £100,000. Class 4 is worked out on profit alone. Payments on account follow the £1,000 and 80% tests. Rates were last checked against GOV.UK on 30 October 2026. Every source is listed on our methodology page.