A sole trader normally pays Income Tax and Class 4 National Insurance on taxable profit, not the total amount invoiced. Work out income and allowable costs using the correct accounting method, then consider other income, allowances and charges before estimating the bill.

The 2026/27 tax year runs from 6 April 2026 to 5 April 2027. The Income Tax bands below apply to England, Wales and Northern Ireland. Scotland has different bands for non-savings, non-dividend income.

Start with profit, not turnover

A business receiving £60,000 with £20,000 of allowable expenses has £40,000 of profit before other tax adjustments. That is an illustrative calculation. The amount withdrawn for personal spending does not reduce sole-trader profit.

Under cash basis, income and costs generally follow money received and paid; traditional accounting uses a different basis. Use the method that applies to you consistently. HMRC's record guidance explains the distinction, and the expenses guide covers common costs to check.

Apply the Income Tax bands

The standard Personal Allowance is £12,570. It reduces by £1 for every £2 of adjusted net income above £100,000, reaching zero at £125,140. Other income can use up the allowance and tax bands.

With the standard allowance, the published 2026/27 bands for England, Wales and Northern Ireland are:

• 20% on income from £12,571 to £50,270;

• 40% from £50,271 to £125,140;

• 45% above £125,140.

Check HMRC's rates and allowances. If you are a Scottish taxpayer, use the Scottish Income Tax guidance instead of applying this table to your trading profit.

Add the relevant National Insurance

For 2026/27, Class 4 is 6% on self-employed profits above £12,570 up to £50,270, then 2% above £50,270. Age and other circumstances can affect liability.

At profits of £7,105 or more, Class 2 is normally treated as paid to protect your National Insurance record. Below that amount, voluntary Class 2 may be available at £3.65 a week. Check HMRC's self-employed National Insurance guidance, particularly if you also have employed earnings.

See the calculation on £40,000 profit

This fictional example assumes residence in England, Wales or Northern Ireland, full Personal Allowance, Class 4 liability and no other income. It excludes student loans, pension adjustments, benefits, capital gains, Child Benefit charges and other reliefs or liabilities.

• Profit: £40,000.

• Less Personal Allowance: £12,570.

• Amount taxed at 20%: £27,430.

• Income Tax: £5,486.

• Class 4 at 6% of £27,430: £1,645.80.

• Total for this example: £7,131.80.

This is not a recommended percentage to set aside from every payment. A different profit, job alongside the business or student loan can change the result. Use the tax calculator only as an estimate within its stated assumptions.

Allow for payments on account

Payments on account are advance payments towards the next year's relevant Self Assessment liability, including Class 4. They are usually due on 31 January and 31 July, with each based on half the previous year's relevant bill.

They are not normally required if that bill was below £1,000 or more than 80% of the tax was collected outside Self Assessment. Read HMRC's payments-on-account rules for the details.

If the example above were the first bill and payments on account applied, the January payment could be £10,697.70: the £7,131.80 bill plus a £3,565.90 first payment on account. Another £3,565.90 would normally follow in July. Those advance payments count towards the following year's bill; they are not the same tax charged twice.

Plan the filing and payment work

For the year ending 5 April 2027, the usual online return and payment deadline is 31 January 2028. Confirm your own deadlines with HMRC, including any registration requirement or earlier paper-return deadline.

If MTD for Income Tax applies, the digital records and updates also need attention during the year. TradePilot's tax figures are estimates using selected England and Northern Ireland assumptions. The app does not submit tax returns or MTD updates.

Written by Chris, founder of TradePilot.

This is general information, not personal tax advice. Official rates, guidance and example calculations checked on 16 September 2026. The example does not represent every Self Assessment liability.