UK tax · 3 min read

Self-Employed Tax Explained (2026/27)

How sole traders pay income tax and Class 4 National Insurance on their profit in 2026/27, with worked examples and how much to set aside.

By the Handy Tools Desk team · Published 14 November 2026

When you work for an employer, tax comes out of your pay before you see it. When you work for yourself, nobody does that for you: you report your profit on a Self Assessment tax return and pay the tax yourself. This article explains what you pay as a sole trader in the 2026/27 tax year, how it is worked out, and how much to put aside.

To try your own numbers, use the self-employed tax calculator.

You are taxed on profit, not takings

Your profit is what you earn from your business minus your allowable business expenses – things like materials, tools, phone costs, insurance and the business share of vehicle costs. Tax is worked out on the profit, so keeping good records of expenses directly lowers your bill.

Instead of claiming actual expenses, you can use the trading allowance: the first £1,000 of trading income is tax-free, and if your income is under that amount you may not need to declare it at all. You cannot use the trading allowance and claim expenses at the same time, so it usually only helps if your costs are low.

Income tax on your profit

Your profit is added to any other income you have and taxed in the same bands as employees. The Personal Allowance of £12,570 comes first, then:

• 20% on the next £37,700 of taxable income,
• 40% on taxable income above that,
• 45% on taxable income above £125,140.

These are the rates for England, Wales and Northern Ireland; Scotland has its own income tax bands.

Class 4 National Insurance

Instead of the National Insurance taken from employees' wages, the self-employed pay Class 4 contributions on profits:

• nothing on profits up to £12,570,
• 6% on profits between £12,570 and £50,270,
• 2% on profits above £50,270.

Class 4 is collected through your Self Assessment return along with your income tax.

What about Class 2?

Class 2 National Insurance is no longer compulsory. If your profits are below the small profits threshold of £7,105, you can choose to pay voluntary Class 2 contributions of £3.65 a week to keep building your record for the State Pension and some benefits. Check your National Insurance record on GOV.UK before deciding.

Worked example: £30,000 profit

A sole trader in England with £30,000 profit and no other income:

• Income tax: £3,486.00
• Class 4 National Insurance: £1,045.80
• Total to pay: £4,531.80, leaving £25,468.20.

Worked example: £55,000 profit

At £55,000 some of the profit falls into the higher-rate band and the upper Class 4 rate:

• Income tax: £9,432.00
• Class 4 National Insurance: £2,356.60
• Total to pay: £11,788.60, leaving £43,211.40.

How much should you set aside?

A simple habit is to move a fixed share of every payment you receive into a separate savings account. Using the examples above, someone on £30,000 profit pays about £4,532 – a little under a fifth of their profit – while someone on £55,000 pays about £11,789. Re-run the calculator every few months as your profit changes, so the amount you set aside keeps up.

Bear in mind that once your tax bill passes a certain size HMRC usually asks for payments on account towards the next year as well, so your first bill can be bigger than you expect. GOV.UK explains how payments on account work.

Drivers and couriers

If you drive for an app, your profit is your fares minus fuel, insurance, servicing and the platform's fees – or you can claim HMRC's mileage rates instead of actual vehicle costs. Our Uber and Bolt driver earnings calculator and mileage allowance calculator help you work out both.

Frequently asked questions

When do I pay my self-employed tax?

You pay through Self Assessment. The online tax return and the balance of the tax for a tax year are normally due by 31 January after that tax year ends. HMRC may also ask for payments on account towards the next year.

Do I need to register as self-employed?

If you earn more than the £1,000 trading allowance from self-employment in a tax year, you normally need to register with HMRC for Self Assessment and send a tax return.

Can I be employed and self-employed at the same time?

Yes. Your employment income uses up your Personal Allowance and lower tax bands first, so your self-employed profit may be taxed at a higher rate than if it were your only income. Class 4 National Insurance is still worked out on your profit alone.

Are the figures different in Scotland?

Income tax is: Scotland has its own bands and rates. Class 4 National Insurance is the same across the UK.

Open the self-employed tax calculator