If you are self-employed, you pay income tax on your profit and Class 4 National Insurance on profits above £12,570, then pay the bill through Self Assessment. For 2026/27 Class 4 is 6% on profit between £12,570 and £50,270 and 2% above that.
Start with profit, not turnover
Your tax is based on profit: turnover minus allowable business expenses. Expenses must be wholly and exclusively for the business, such as materials, software and insurance, and the details can be technical, so check GOV.UK. Instead of claiming expenses, you can use the trading allowance of £1,000 a year. You cannot do both, so choose whichever gives the lower profit. The allowance is useful when your real costs are small.
Income tax on profit
The Personal Allowance is £12,570 and is reduced by £1 for every £2 of income over £100,000. In England, Wales and Northern Ireland the rates are 20% on taxable income up to £37,700, 40% up to £125,140 and 45% above. Scotland has its own bands, which this calculator does not model.
National Insurance
- Class 4: 6% on profits between £12,570 and £50,270, and 2% above £50,270.
- Class 2: no longer compulsory. It is treated as paid once profit reaches the small profits threshold of £7,105. Below that you can pay voluntarily at £3.65 a week to protect your State Pension record.
Worked example
You earn £40,000 turnover with £8,000 of expenses.
- Profit: £32,000
- Income tax: (£32,000 − £12,570) × 20% = £3,886
- Class 4: (£32,000 − £12,570) × 6% = £1,166 (rounded)
- Total tax and NI: £5,052
- Left per year: £26,948, or about £2,246 a month
- Money to set aside: about £421 a month, 15.8% of profit
With £50,000 turnover and the trading allowance instead of expenses, the profit is £49,000 and the bill is £9,472, which is 19.3% of profit.
With a higher profit the share set aside rises. With £70,000 turnover and £10,000 of expenses, profit is £60,000 and the bill is £13,889, which is 23.1% of profit. Part of that profit is taxed at 40% and the Class 4 rate is still only 2% above £50,270, so the percentage rises gradually rather than jumping.
Keeping records and claiming expenses
Keep invoices, receipts and bank statements for everything you claim. Expenses that are only partly for business, such as a phone or a room at home, should be split fairly between business and private use. Costs that last several years, such as equipment, are treated differently from everyday costs, so check GOV.UK on what applies to you. Good records matter because HMRC can ask to see them, and every pound of genuine expense reduces both income tax and Class 4.
Student loan
If you have a student loan, repayments are based on your profit and collected through Self Assessment. Plan thresholds are £26,900 (Plan 1), £29,385 (Plan 2), £33,795 (Plan 4) and £25,000 (Plan 5), at 9%, with the postgraduate loan at 6% above £21,000. The calculator includes these.
Payments on account
After your first year, HMRC may ask for advance payments towards the next bill. These are two payments, each half of the previous year’s income tax and Class 4 bill, due on 31 January and 31 July. They are not needed if last year’s bill was under £1,000 or if more than 80% was already collected at source. You can ask to reduce them if your profit falls. A balancing payment follows. Student loan repayments are not included in payments on account. Because the first year often brings a bill plus a first payment on account, plan for that.
Making Tax Digital
Making Tax Digital for Income Tax is mandatory from 6 April 2026 if your qualifying income from self-employment and property is over £50,000, from 6 April 2027 over £30,000 and from 6 April 2028 over £20,000. It means keeping digital records and sending quarterly updates. Check GOV.UK to see if it applies to you.
VAT
VAT is separate. Registration is compulsory when your taxable turnover passes £90,000 in a rolling 12-month period. See VAT explained: adding and removing VAT, and our UK income tax explained: bands, allowance and how it's worked out and National Insurance for employees: what you pay and why guides for how the same bands work for employees.
Note: This is general information, not tax advice. Check GOV.UK for current rules.
Try the calculator
Use the Self-employed tax and National Insurance calculator to estimate your tax, NI and monthly set-aside. Compare it with an employee’s take-home using the UK take-home pay.
Open the free Self-employed tax and National Insurance calculator
Worked example 2: four levels of profit side by side
The same rules produce quite different percentages as profit grows. These figures are for 2026/27, England, Wales or Northern Ireland, no student loan, calculated with our self-employed tax calculator using actual expenses (so profit equals the figure shown).
| Profit | Income tax | Class 4 NI | Total | Left per year | Share of profit |
|---|---|---|---|---|---|
| £25,000 | £2,486 | £746 | £3,232 | £21,768 | 12.9% |
| £30,000 | £3,486 | £1,046 | £4,532 | £25,468 | 15.1% |
| £60,000 | £11,432 | £2,457 | £13,889 | £46,111 | 23.1% |
| £90,000 | £23,432 | £3,057 | £26,489 | £63,511 | 29.4% |
You can check the first row by hand. Taxable income is £25,000 − £12,570 = £12,430. Income tax at 20% is £2,486, and Class 4 at 6% is £745.80, which the tool rounds to £746. The set-aside for that profit is about £269 a month.
At £90,000 the Personal Allowance is still intact (it only starts to shrink above £100,000), but 40% tax applies to everything above £50,270. The Class 4 rate falls to 2% on the top slice, which is why NI barely grows while income tax climbs.
Worked example 3: student loan and a payment on account
Suppose you have turnover of £45,000, expenses of £5,000 and a Plan 2 student loan. The tool gives:
- Profit: £40,000
- Income tax: £5,486
- Class 4 National Insurance: £1,646
- Student loan: £955 (9% of the £10,615 above the £29,385 Plan 2 threshold, rounded)
- Total to pay: £8,087, or about £674 a month to set aside
Payments on account are based on income tax and Class 4 only, so each one here is half of £7,132, which is £3,566. The student loan is settled through the balancing payment rather than in advance.
Now imagine a first full year of trading with a £4,532 tax and Class 4 bill (a profit of £30,000). On the following 31 January you would normally pay the £4,532 balance plus a first payment on account of £2,266, which is £6,798 in one go (our own addition, not a tool output). The second payment on account of £2,266 follows on 31 July. This is the cash-flow surprise that catches many new sole traders, so set money aside from the first invoice.
Step by step: working out your bill by hand
- Add up your turnover for the tax year (6 April to 5 April).
- Subtract allowable expenses, or the £1,000 trading allowance if that gives a lower profit.
- Subtract the £12,570 Personal Allowance (check whether it is reduced if your income is above £100,000).
- Apply 20% to the first £37,700 of the remainder and 40% to the next slice, up to £125,140.
- Work out Class 4: 6% of profit between £12,570 and £50,270, plus 2% of profit above £50,270.
- Add any student loan repayment.
- Subtract anything already collected at source, such as tax from another job.
If you also have employment income, your total income decides the tax band, so the calculation is more involved. Use the figure on your Self Assessment return rather than this simplified method.
Key dates through the year
| When | What happens |
|---|---|
| 6 April | Tax year starts |
| 5 April | Tax year ends |
| 31 January (after the year end) | Online return deadline, balancing payment and first payment on account |
| 31 July | Second payment on account |
| 7 August, 7 November, 7 February, 7 May | Quarterly update deadlines if you are in Making Tax Digital with standard quarters |
If you are newly self-employed, you must tell HMRC that you need to file a return. Check GOV.UK for the registration deadline that applies to you, and do not leave it late.
Common mistakes to avoid
- Spending the money you owe. Revenue in your account is not profit. Move a share of every payment into a separate savings account.
- Claiming both the trading allowance and expenses. You must choose one.
- Forgetting that Class 4 is charged on top of income tax. It is not included in the income tax figure.
- Mixing personal and business spending. Keep a separate bank account if you can, to make records simple.
- Missing payments on account. Interest and penalties can apply to late payments, so diarise both dates.
- Ignoring VAT until the last moment. Turnover is measured over a rolling 12 months, not the tax year. See VAT explained: adding and removing VAT.
Compare with being an employee
A sole trader and an employee on the same income pay different amounts, and the gap depends on the employee’s pension and NI. Our How to work out your take-home pay from a UK salary guide shows the employee side, while National Insurance for employees: what you pay and why explains how Class 1 and Class 4 differ. If you also have profits from dividends or savings, other allowances apply, so check GOV.UK.
When to ask an accountant
Consider professional help if you have both employment and self-employment income, make a loss, own a property, are close to the VAT threshold or Making Tax Digital limits, or want to claim capital allowances on equipment. A good accountant often pays for themselves through claims you would otherwise miss, but get a quote first.
Frequently asked questions
How much should I set aside for tax?
It depends on your profit. The calculator shows the amount per month and as a share of profit. Setting aside a little more than the estimate avoids a shortfall.
Can I claim the trading allowance and expenses?
No. You choose one or the other. The allowance is £1,000 a year, so it only helps if your expenses are less than that.
Do I pay Class 2 National Insurance?
Not compulsorily. It is treated as paid at or above the small profits threshold, and voluntary Class 2 is available below it.
When is the tax bill due?
The balancing payment and the first payment on account are due on 31 January after the tax year, with the second payment on account due on 31 July.
Do I need to register as self-employed if I earn less than the trading allowance?
Income under £1,000 from trading in a tax year is covered by the trading allowance, so you may not need to tell HMRC. The details depend on your circumstances, so check GOV.UK.
Can I deduct a loss from other income?
Sometimes. Trading losses can be set against other income or carried forward, subject to rules. Check GOV.UK or ask an accountant, because the choice affects your tax.
Are payments on account an extra tax?
No. They are advance payments towards your next bill, based on the previous year’s figures. If your profit falls, you can ask HMRC to reduce them.
Do I pay Class 4 NI on losses?
No. Class 4 is charged on profits above £12,570, so no Class 4 is due when profit is below that level.