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UK sole trader tax: how much should you set aside?
HMRC doesn't take tax from a sole trader's income as it comes in. You pay it through Self Assessment, often in big lumps, so a monthly set-aside is essential. These are the 2026/27 figures for England, Wales and Northern Ireland.
Check official sources. Figures below were checked against the official pages listed at the bottom on 14 October 2026. Budget and Finance Act changes can alter them, so confirm before relying on them.
Income Tax 2026/27
| Band | Profit | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Scotland has different Income Tax bands, but National Insurance is the same across the UK.
National Insurance for the self-employed
- Class 4: 6% on profits between £12,570 and £50,270, and 2% above £50,270.
- Class 2: no longer has to be paid. If your profits are £7,105 or more, it's treated as paid to protect your NI record. Below that you can choose to pay voluntarily (£3.65 a week in 2026/27).
Worked example: £35,000 profit, no other income
| Income Tax: 20% × (£35,000 − £12,570) | £4,486.00 |
| Class 4 NI: 6% × £22,430 | £1,345.80 |
| Total | £5,831.80 ≈ 16.7% of profit |
Each extra pound of profit in the basic-rate band costs 26p (20% + 6%), and 42p in the higher-rate band (40% + 2%). Setting aside 20–25% of profit covers most basic-rate sole traders with some margin.
Payments on account: the first-year shock
If last year's bill was £1,000 or more (and less than 80% was collected at source), HMRC asks for two payments on account, each half of last year's bill, due 31 January and 31 July. In your first year you pay the full bill plus the first payment on account on 31 January, so on a £3,000 bill you would owe £4,500.
Making Tax Digital for Income Tax
From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send quarterly updates using compatible software. The threshold is your income (turnover), not your profit.
A simple system
- Open a separate savings account for tax.
- Move your percentage across every time you're paid.
- Track expenses, because they reduce profit. If you drive for work, keep a mileage log.
- Re-check your percentage each quarter.
Sources
- GOV.UK – Income Tax rates and Personal Allowances
- GOV.UK – Self-employed National Insurance rates
- GOV.UK – Payments on account
- GOV.UK – Making Tax Digital for Income Tax
Figures checked 12–13 October 2026. Rules change, so always confirm with the official source.
Frequently asked questions
What National Insurance do sole traders pay in 2026/27?
Class 4 at 6% on profits between £12,570 and £50,270, and 2% above. Class 2 is treated as paid if profits are £7,105 or more.
What are payments on account?
Two advance payments towards next year's bill, each half of last year's bill, due 31 January and 31 July, if last year's bill was £1,000 or more.
Not financial advice. These guides are general information for budgeting and planning, not financial, tax, legal or mortgage advice. Rules change and your situation is unique. Check official sources or a qualified adviser before you act.