How much tax should I set aside as a sole trader?

Last checked 19 October 2026

Many new sole traders are caught out by the first January bill. Knowing how the bill is built helps you plan. All rates below are for the 2026 to 2027 tax year (6 April 2026 to 5 April 2027), as shown on GOV.UK on the day we checked.

You pay tax on profit, not turnover

GOV.UK’s Self-employed National Insurance rates page says you work out your profits by deducting your allowable expenses from your self-employed income. HMRC’s expenses guide explains what counts. If something is used for both business and personal reasons, you can only claim the business part.

Profit is the figure your Income Tax and National Insurance are based on, so good records of your expenses matter.

Income Tax

According to GOV.UK’s Income Tax rates page, the standard Personal Allowance is £12,570. The rates in England, Wales and Northern Ireland for 2026 to 2027 are:

Band	Taxable income	Rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	Over £125,140	45%

Some things change this. GOV.UK says:

• bands are different if you live in Scotland, with details on the Scottish Income Tax page
• your Personal Allowance goes down by £1 for every £2 of adjusted net income above £100,000, and is zero at £125,140 or above
• how much you pay depends on how much of your income is above your Personal Allowance and how much falls in each band, so other income, such as pay from a job, counts as well as your profit

Class 4 and Class 2 National Insurance

GOV.UK says that for 2026 to 2027:

• if your profits are more than £12,570, you pay Class 4 at 6% on profits between £12,570 and £50,270, and 2% on profits over £50,270
• if your profits are £7,105 or more, Class 2 contributions are treated as paid to protect your National Insurance record, so you don’t have to pay them
• if your profits are less than £7,105, you don’t have to pay anything, but you can choose to pay voluntary Class 2 at £3.65 a week

Most people pay Class 2 and Class 4 through Self Assessment, alongside Income Tax.

Payments on account

This is the part that surprises people. GOV.UK’s payments on account guide says they’re payments towards your next tax bill, including Class 4 National Insurance. They’re due by midnight on 31 January and 31 July. Each one is usually half of the tax you owed the previous year.

You don’t have to make payments on account if either:

• the tax you owed last year was less than £1,000
• last year you paid more than 80% of the tax you owed outside Self Assessment, for example through your tax code

If you didn’t make payments on account last year, for example because it’s your first return, GOV.UK says your 31 January payment is made up of your bill for the year plus the first payment on account for the next year. If you know your tax will be lower than last year, you can ask HMRC to reduce your payments on account.

Payments on account cover Income Tax and Class 4 National Insurance only. GOV.UK says the 31 January balancing payment also includes anything you owe for capital gains or student loans, so if you repay a student loan through Self Assessment, that’s added on top.

Our MTD quarterly deadlines guide lists every date in the 2027 to 2028 calendar, including the 31 January and 31 July payments.

An illustrative example

This example is for illustration only. It isn’t a calculation of anyone’s tax.

It assumes £30,000 of profit in 2026 to 2027, the person’s first year of trading and first tax return (so no earlier payments on account), no other income and no tax paid outside Self Assessment, the standard Personal Allowance, England, Wales or Northern Ireland rates, and no student loan. Payments on account apply because the bill is over £1,000.

Part of the bill	Working	Amount
Income Tax	20% of (£30,000 minus £12,570)	£3,486.00
Class 4 National Insurance	6% of (£30,000 minus £12,570)	£1,045.80
Bill for 2026 to 2027		£4,531.80
First payment on account for 2027 to 2028	Half of £4,531.80	£2,265.90
Due by 31 January 2028	Bill plus first payment on account	£6,797.70
Due by 31 July 2028	Second payment on account	£2,265.90

The payments on account are then set against the 2027 to 2028 bill. If that bill turns out higher, GOV.UK says you make a balancing payment by the following 31 January. GOV.UK’s own worked examples on the payments on account page show the same pattern.

Change any assumption and the numbers change, which is why we don’t suggest a percentage. GOV.UK has a Self Assessment tax calculator to estimate your own bill.

Using MTD to see your bill during the year

If you use Making Tax Digital (MTD) for Income Tax, GOV.UK’s Send quarterly updates page says that after you send an update you can get an estimate of your tax bill for the tax year so far, in your software and your HMRC online account. GOV.UK says the estimate will be less accurate if you have other income sources you’ve not told HMRC about yet, or if your accounting period doesn’t match the tax year.

For the April 2027 group, see our guides to the £30,000 threshold and MTD penalties, which cover late payment as well as late submissions.

Ways people plan for the bill

These are general approaches, not recommendations:

• keeping tax money in a separate account so it isn’t spent by mistake (see our guide to separate business bank accounts)
• updating a running estimate each month from their records
• checking their Self Assessment statement in their HMRC online account for what’s due
• asking an accountant to estimate the bill before 31 January

If you can’t pay on time, GOV.UK’s Get help with tax page says to contact HMRC first.

Frequently asked questions

Is there a percentage I should put aside?

We don’t give one, because the right amount depends on your profit, other income, where you live and whether payments on account apply. GOV.UK’s calculator or an accountant can help you estimate yours.

Why is my first bill so high?

If payments on account apply, GOV.UK says your first 31 January payment includes the bill for the year plus the first payment on account towards the next year.

Do I pay National Insurance as a sole trader?

GOV.UK says you pay Class 4 if your profits are more than £12,570. Class 2 is treated as paid if your profits are £7,105 or more. Below that you can choose to pay voluntary Class 2.

Can I reduce my payments on account?

GOV.UK says you can ask HMRC to reduce them if you know your tax will be lower than last year. You’ll need to give the amount you expect to make.

Are the rates different in Scotland?

Income Tax bands are different if you live in Scotland. GOV.UK has a separate page for Scottish rates.

Will MTD change when I pay?

GOV.UK says that under MTD you still pay your tax bill by 31 January after the tax year ends. Quarterly updates are summaries, not tax returns or payments.

Sources

All checked on GOV.UK on 19 October 2026. Rates are for the 2026 to 2027 tax year.

• Income Tax rates and Personal Allowances
• Self-employed National Insurance rates
• Understand your Self Assessment tax bill: payments on account
• Self Assessment tax returns: deadlines
• Expenses if you’re self-employed
• Send quarterly updates (updated 16 October 2026)
• Using Making Tax Digital for Income Tax for the first time (updated 16 October 2026)
• Get help with tax