"How much tax will I actually pay?" is the question every new sole trader wants answered. This guide gives you the real numbers for 2026/27 — the Income Tax bands, the National Insurance you pay on top, a full worked example, and how much to put aside so the January bill never blindsides you.
You're taxed on profit
The single most important thing to understand: you don't pay tax on everything you bill, only on your profit. Take your income, subtract your allowable expenses, and the figure left over is what Income Tax and National Insurance are calculated on.
The figures below apply to England, Wales and Northern Ireland. Scotland sets its own Income Tax bands, so if you live in Scotland the rates differ (National Insurance is the same UK-wide).
Income Tax bands
For 2026/27, Income Tax on your profit works in slices:
The first £12,570 — the Personal Allowance — is taxed at 0%. You only pay the higher rate on the part of your profit in that band, not on the whole lot.
National Insurance
Sole traders pay National Insurance separately from Income Tax, through the same Self Assessment return.
- Class 4 — 6% on profits between £12,570 and £50,270, then 2% on profits above £50,270.
- Class 2 — now voluntary. If your profits are above the small profits threshold (£7,105 for 2026/27), it's treated as paid, so your State Pension record is protected at no cost. If you're below it, you can choose to pay Class 2 voluntarily (£3.65 a week) to keep building that record.
A worked example
Take a sole trader with £35,000 profit for the year (England):
- Income Tax: (£35,000 − £12,570) = £22,430 taxed at 20% = £4,486
- Class 4 NI: (£35,000 − £12,570) = £22,430 at 6% = £1,345.80
- Class 2 NI: profits are above the small profits threshold, so it's treated as paid — £0 to pay
Total due: roughly £5,832 — about 17% of the profit. That's why a 25–30% set-aside leaves a comfortable buffer. Push profit into the 40% band and the marginal rate jumps, so the percentage you set aside should rise with your income.
Payments on account
Here's the part that catches first-timers. If your bill is over £1,000, HMRC asks you to pre-pay next year's tax in two payments on account:
- 31 January — your balancing payment for the year just gone, plus the first payment on account (50% of that bill) for the next year.
- 31 July — the second payment on account (the other 50%).
So in your first January filing, you can be asked for about 150% of the year's tax at once. It's not extra tax — it's brought forward — but it's a cashflow shock if you didn't save for it.
How much to set aside
A simple discipline keeps you safe:
- Basic-rate, comfortable: move 25–30% of every payment into a separate tax pot.
- Approaching the 40% band: closer to 40% on the profit above £50,270.
- First year: add a bit extra to cover the payment-on-account hit in January.
Knowing your numbers as the year goes — rather than discovering them in January — is the whole point of keeping good records. See how Self Assessment works and which expenses cut the bill.