How much tax will I actually pay?
You pay Income Tax and Class 4 National Insurance on your profit, and for most self-employed people in 2026/27 the combined bill lands somewhere between a fifth and a quarter of profit once it climbs past the tax-free allowance. The word that matters there is profit. You are not taxed on everything that lands in your account, only on what is left after you take off the costs of doing the work, so two sole traders with the same turnover can owe very different amounts.
There are two charges to keep separate in your head. Income Tax is the big one, charged in bands that rise as your profit rises. Class 4 National Insurance sits on top, at a flat 6 percent on most of your profit and 2 percent on the slice above the higher-rate line. Class 2 National Insurance, the old weekly charge, is now treated as paid for you once your profit passes £7,105, so for most people it no longer shows up as a cost. If you want the sector view, our accountants for freelancers and the self-employed handle this across London every January.
This guide is written by LOYALS, a King's Cross firm of accountants and business consultants that prepares Self Assessment returns and tax planning for sole traders, and the aim here is to give you the real number and the levers behind it, not a wall of theory. If you would rather hand the whole thing over, our Self Assessment and personal tax service does exactly that.
What the bill looks like at £30k, £50k and £80k profit
At £30,000 of profit you pay about £4,532, at £50,000 about £9,732, and at £80,000 about £22,289. The jump between the middle and the top figure is the thing to notice, because that is where higher-rate tax starts biting and the bill climbs faster than the profit does.
Read across the three and the shape of the system shows itself. On £30,000 almost all your profit is taxed at the gentler basic rate, so you keep about 85 percent of it. On £50,000 you are still just under the higher-rate line, so the rate has not changed, only the amount. On £80,000 roughly £30,000 of your profit falls into the 40 percent band, which is why the bill more than doubles between £50k and £80k even though profit only rises by £30k. None of these are your exact numbers, because your expenses and any employment income will move them, but they show the pattern you are working with.
How your Income Tax is worked out
Income Tax on self-employed profit is charged in bands, and for 2026/27 those bands are frozen where they have been for several years. The first £12,570 of profit is covered by the personal allowance and taxed at nothing. Profit from £12,571 to £50,270 is taxed at the 20 percent basic rate. Profit from £50,271 to £125,140 is taxed at the 40 percent higher rate. Anything above £125,140 is taxed at the 45 percent additional rate. These figures are set out on the GOV.UK Income Tax rates and allowances page.
One trap catches higher earners and is easy to miss. Once your total income passes £100,000, your personal allowance is withdrawn by £1 for every £2 over, which creates an effective tax rate of about 60 percent on the slice between £100,000 and £125,140. If your profit is heading into that band, a pension contribution to bring your income back under £100,000 is often the single most valuable move you can make, and it is worth modelling before the year ends rather than after.
The National Insurance you pay
On top of Income Tax, the self-employed pay Class 4 National Insurance, and for 2026/27 it is 6 percent on profit between £12,570 and £50,270, then 2 percent on profit above £50,270. So a sole trader on £45,000 of profit pays Class 4 only at the 6 percent rate, while one on £80,000 pays 6 percent up to the higher-rate line and 2 percent on the rest. The rates and thresholds are on the GOV.UK self-employed National Insurance page.
Class 2 National Insurance used to be a separate weekly charge, but it works differently now. If your profit is £7,105 or more it is treated as paid, so you keep your entitlement to the state pension and benefits without handing over anything. If your profit is below £7,105 you do not have to pay, though you can choose to pay voluntary Class 2 at £3.65 a week to keep your record complete, which is usually worth it if you are short of qualifying years. The chart below shows where a £45,000 profit goes once both taxes are taken out.
Working out your own bill, step by step
You can get close to your own number in five steps, and doing it once makes the whole thing far less frightening.
- Add up your income for the tax year. That is everything you invoiced or were paid for your self-employed work between 6 April and 5 April.
- Take off your allowable expenses. Only genuine business costs count, but claim every one you are entitled to. What is left is your profit, and that is what you are taxed on.
- Work out the Income Tax. Knock off the first £12,570, then apply 20 percent to the next slice up to £50,270 and 40 percent above that.
- Add the Class 4 National Insurance. Apply 6 percent to profit between £12,570 and £50,270, and 2 percent to anything above.
- Check for payments on account. If your bill is over £1,000, you will also pay two advance instalments towards next year, which catches a lot of first-timers off guard.
That last step is the one that turns a £4,000 bill into a £6,000 payment in a first January, because you settle the year just gone and pay half of next year at the same time. It is not extra tax, it is tax brought forward, but it is a genuine cash-flow shock if nobody warned you.
Legal ways to cut what you owe
The honest list of ways to pay less is shorter than the internet suggests, but each one is real. Claim every allowable expense, because an expense you forget is profit you are taxed on at your marginal rate. Pay into a pension, which extends your basic-rate band and is especially powerful if your profit is near £50,270 or £100,000. Use the £1,000 trading allowance instead of expenses if your costs are tiny. Time a large equipment purchase so the capital allowance lands in the right year. And once your profit is consistently high, look hard at whether a limited company would leave you with more.
That last point is where owners most often leave money on the table, and where they most often incorporate too early for the wrong reasons. We have set out the real break-even in sole trader versus limited company at £50k, and how a company owner should actually pay themselves in our guide to the director's salary for 2026/27. Here is where we will commit to a view: if your profit is under about £30,000 and your affairs are simple, you almost certainly do not need an accountant for this, and you should use the calculator above and file it yourself. The point where that changes is when profit clears roughly £50,000, a second income or a property arrives, or Making Tax Digital lands on you, because that is when the time, the risk of getting it wrong and the tax at stake start to outweigh a fixed fee.
Deadlines and late penalties
You file your Self Assessment return online and pay what you owe by 31 January after the tax year ends, so the 2025/26 return and payment are both due by 31 January 2027. If this is your first year, you also need to register for Self Assessment by 5 October after the tax year you started, or you risk a failure-to-notify penalty. The full timeline is on the GOV.UK Self Assessment deadlines page.
Missing the filing date is expensive and automatic. You get a £100 penalty the day after the deadline even if you owe nothing. After three months it becomes £10 a day for up to 90 days, which is a further £900. At six months and again at twelve months there is a penalty of 5 percent of the tax due or £300, whichever is greater. Paying late is charged on top, at 5 percent of the unpaid tax at 30 days, six months and twelve months, with interest running the whole time. The detail is on the GOV.UK penalties page. The practical lesson is simple: file on time even if you cannot pay in full, because the filing penalties are far harsher than arranging to pay over a few months.
Making Tax Digital, do you have to?
For some sole traders this is no longer a future problem. From 6 April 2026, if your qualifying income for the 2024/25 year was over £50,000, you are required to keep digital records and send HMRC a quarterly update through approved software rather than filing one return a year. The threshold falls to over £30,000 from April 2027, and over £20,000 from April 2028, as set out in the GOV.UK Making Tax Digital for Income Tax guidance.
The figure that trips people up is qualifying income, because it is your gross self-employment and property income added together, before expenses. A sole trader turning over £55,000 with £20,000 of costs has a modest £35,000 profit but is already over the £50,000 line, so the first wave can catch businesses that do not feel large. If that is you, moving to compatible software early is far less painful than scrambling at the first quarterly deadline, and our Making Tax Digital for Income Tax service sets it up so the quarterly updates run quietly in the background. LOYALS is a King's Cross firm of accountants and business consultants, and the next step is a 15-minute call where we tell you your likely bill and whether Making Tax Digital applies to you, before you owe us anything.