How self employed tax works
As a sole trader you are taxed on your profit, which is your income (turnover) minus your allowable business expenses. Your first £12,570 of profit is covered by the personal allowance, so it is tax-free. Above that, income tax is 20% up to £50,270, 40% up to £125,140 and 45% beyond. On top of income tax you pay Class 4 National Insurance: 6% on profit between £12,570 and £50,270, then 2% above £50,270 for 2026-27. Class 2 National Insurance is £0 to pay once your profit clears the £7,105 Small Profits Threshold, because you are treated as having paid it, so it is left out of the total here. These bands are for England, Wales and Northern Ireland; Scotland sets its own income tax bands, though Class 4 NI is the same across the UK.
Sole trader and Self Assessment tax explained
Sole trader is the tax status most self-employed people and freelancers have, and Self Assessment is how you report your profit to HMRC and pay what you owe. You file a Self Assessment tax return after the 5 April year end, and the balancing payment is due by 31 January. Because the bill arrives in one go, it helps to set aside a share of every invoice as you go. This sole trader tax calculator gives you that monthly figure alongside the yearly total, so your Self Assessment bill is money you have already put aside rather than a January shock.
Payments on Account catch a lot of people out
If your Self Assessment bill is more than £1,000, HMRC asks for Payments on Account: two instalments towards next year's tax, each 50% of this year's bill. The first is due by 31 January alongside your balancing payment, the second by 31 July. So in your first busy year you can face roughly 150% of the bill in one January, which is a real cash-flow shock if you have not saved for it. The fix is simple in principle: move a set share of every payment you receive into a separate tax pot as you go, so the money is already there when the deadline lands. Treat this tool as a way to size that pot, not as tax advice.
Frequently asked questions
How much tax do I pay as a sole trader?
A sole trader pays income tax and Class 4 National Insurance on profit, which is income minus allowable expenses. Sole trader is the tax term for most self-employed people and freelancers. For 2026-27, income tax is 20% on profit between £12,570 and £50,270, 40% up to £125,140, then 45%. Class 4 NI adds 6% between £12,570 and £50,270, then 2% above that. On £50,000 profit that is about £9,732, or roughly £811 a month to set aside.
Do self-employed pay 40% tax?
Only on the part of your profit above £50,270. The 40% higher rate applies to profit in that band, up to £125,140, not to your whole income. Below £50,270 your profit is taxed at 20% after the £12,570 personal allowance. So someone with £45,000 profit pays no 40% tax at all, while someone with £70,000 profit pays 40% only on the £19,730 above £50,270.
How much tax will I pay on £20,000 self-employed?
On £20,000 of profit you would set aside about £1,932 for 2026-27. Your first £12,570 is covered by the personal allowance, leaving £7,430 taxable. Income tax is 20% of that, £1,486, and Class 4 National Insurance is 6% of that, £445.80. Together that is £1,931.80, an effective rate of around 9.7%.
How much can I earn self employed before paying tax?
Your first £12,570 of profit is covered by the personal allowance, so no income tax is due below that. Class 4 National Insurance also starts at £12,570. On top of that, the £1,000 trading allowance means you can earn up to £1,000 of self-employment income without even reporting it to HMRC.
What is Class 4 National Insurance?
Class 4 is the National Insurance sole traders pay on profits. For 2026-27 it is 6% on profit between £12,570 and £50,270, then 2% on anything above £50,270. It is worked out through Self Assessment and paid alongside your income tax, so budget for both together.
Do I still pay Class 2 National Insurance as a sole trader?
Not if your profit is above the £7,105 Small Profits Threshold. Since 2024-25, sole traders above that level are treated as having paid Class 2, so it costs £0 while still counting towards your State Pension. Below £7,105 you can pay Class 2 voluntarily, £3.65 a week for 2026-27, to protect your record.
How much should I set aside for tax when self employed?
A common rule of thumb is 25% to 30% of your profit, but it depends on how much you earn. This calculator works out the exact income tax and Class 4 NI for your profit, shown as a monthly figure and a yearly total, and flags any Payments on Account, so you can move that share into a separate savings pot as you invoice rather than scrambling at the January deadline.
This tool is a guide, not tax or financial advice.
