How much tax should a sole trader set aside?
Tax year 2026/27. Last checked 9 October 2026 against GOV.UK. General information, not tax advice.
The short version
As a sole trader nobody takes tax off your earnings as you go, so you have to put money aside yourself. You pay two things on your profit (what is left after allowable business expenses): Income Tax and Class 4 National Insurance. This guide shows how each one is worked out, with examples, and why your first Self Assessment can feel like a double bill.
Income Tax, band by band
The first £12,570 of your income each year is your Personal Allowance, which is tax-free. After that, tax is charged in slices (bands), and each slice has its own rate. For England, Wales and Northern Ireland in 2026/27:
- Basic rate, 20%, on income from £12,571 to £50,270
- Higher rate, 40%, on income from £50,271 to £125,140
- Additional rate, 45%, on income over £125,140
Only the part of your income that falls inside a band is taxed at that band's rate. Going into the higher band does not make all your income taxed at the higher rate.
If your income is over £100,000, your Personal Allowance shrinks by £1 for every £2 over, and it is gone completely at £125,140.
Class 4 National Insurance
Self-employed people pay Class 4 National Insurance on profit as well: 6% on profit between £12,570 and £50,270, and 2% on profit above £50,270. Nothing is due on the first £12,570.
Class 2 is no longer something most people have to pay. With profits of £7,105 or more it counts as paid. Below that you do not have to pay, but you can choose to (£3.65 a week) to protect your National Insurance record.
Worked examples
Each example is a sole trader in England, Wales or Northern Ireland with no other income. The figures come from the same rates our free tools use.
Profit of £20,000
| Part of your profit | Amount at rate | Tax |
|---|---|---|
| Covered by your Personal Allowance (£12,570) | £12,570 at 0% | £0 |
| Basic rate | £7,430 at 20% | £1,486 |
| Income Tax | £1,486 | |
| Class 4 National Insurance, profits £12,570 to £50,270 | £7,430 at 6% | £445.80 |
| Class 4 National Insurance | £445.80 | |
| Total for the year | £1,931.80 | |
That is an effective rate of 9.7%. Setting aside a twelfth each month means about £160.98 a month.
Profit of £40,000
| Part of your profit | Amount at rate | Tax |
|---|---|---|
| Covered by your Personal Allowance (£12,570) | £12,570 at 0% | £0 |
| Basic rate | £27,430 at 20% | £5,486 |
| Income Tax | £5,486 | |
| Class 4 National Insurance, profits £12,570 to £50,270 | £27,430 at 6% | £1,645.80 |
| Class 4 National Insurance | £1,645.80 | |
| Total for the year | £7,131.80 | |
That is an effective rate of 17.8%. Setting aside a twelfth each month means about £594.32 a month.
Profit of £60,000
| Part of your profit | Amount at rate | Tax |
|---|---|---|
| Covered by your Personal Allowance (£12,570) | £12,570 at 0% | £0 |
| Basic rate | £37,700 at 20% | £7,540 |
| Higher rate | £9,730 at 40% | £3,892 |
| Income Tax | £11,432 | |
| Class 4 National Insurance, profits £12,570 to £50,270 | £37,700 at 6% | £2,262 |
| Class 4 National Insurance, profits over £50,270 | £9,730 at 2% | £194.60 |
| Class 4 National Insurance | £2,456.60 | |
| Total for the year | £13,888.60 | |
That is an effective rate of 23.1%. Setting aside a twelfth each month means about £1,157.38 a month.
A simple monthly set-aside
Work out the year's total (Income Tax plus Class 4) and divide it by 12. Move that amount into a separate savings account each month so the money is there when the bill arrives. If you are not sure of your profit yet, a cautious approach is to use a slightly higher estimate and adjust as the year goes on.
Payments on account: the first-year surprise
Your tax bill for a year is due by 31 January after the year ends. On top of that, HMRC normally asks you to pay next year's bill in advance, in two instalments called payments on account. Each is half of the year's bill, due on 31 January and 31 July.
You do not have to make them if your bill was under £1,000, or if more than 80% of it was already collected another way, such as through a tax code.
The shock comes in your first year. You have paid nothing in advance, so in the first 31 January you pay the whole bill for the year plus the first payment on account: 150% of the year's bill in one go. Then you pay the second half on 31 July.
Example: profit of £40,000 in your first year
The year's bill (Income Tax plus Class 4) is £7,131.80. Half of that is £3,565.90.
| Balancing payment for the year (the whole bill, as you have paid nothing yet) | £7,131.80 |
| First payment on account (half the bill, towards next year) | £3,565.90 |
| Due on 31 January | £10,697.70 |
| Second payment on account, due on 31 July | £3,565.90 |
So in the first 31 January you pay about £10,700, which is 150% of the year's bill, and a further £3,570 or so in 31 July.
From the second year on, the payments on account are based on the previous year's bill, so you are paying about the same amount twice a year, plus any balancing payment if the actual bill is higher. If you expect a lower bill you can ask HMRC to reduce the payments.
The takeaway: in your first year, set aside more than a twelfth of the bill, or be ready for a large payment the first 31 January.
Scotland
If you live in Scotland your Income Tax on this income uses different bands and rates. Class 4 National Insurance is the same as the rest of the UK. For 2026/27:
| Band | Income (with the standard Personal Allowance) | Rate |
|---|---|---|
| Starter rate | £12,571 to £16,537 | 19% |
| Basic rate | £16,538 to £29,526 | 20% |
| Intermediate rate | £29,527 to £43,662 | 21% |
| Higher rate | £43,663 to £75,000 | 42% |
| Advanced rate | £75,001 to £125,140 | 45% |
| Top rate | over £125,140 | 48% |
Our free tools can work out the Scottish figures if you choose Scotland.
What these examples leave out
- Student loan repayments
- Other income, such as a salary, dividends, savings interest or rental income, which can push your profit into a higher band
- Pension contributions, Gift Aid and other reliefs, and the Marriage Allowance
- The £1,000 trading allowance, which is an alternative to claiming expenses for small amounts of income
- Class 1 National Insurance on a salary from an employer
They also assume the profit is already after allowable expenses. See our allowable expenses guide.
About this guide
Tax year: 2026/27 (6 April 2026 to 5 April 2027).
Last checked: 9 October 2026 against GOV.UK.
GOV.UK pages used:
- Income Tax rates and Personal Allowances
- Scottish Income Tax: how it works
- Self-employed National Insurance rates
- Understand your Self Assessment bill: payments on account
- Expenses if you are self-employed
This guide is general information, not tax advice.
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