Set aside too little and January becomes a crisis. Set aside too much and you restrict your cashflow unnecessarily. This guide gives you the exact calculations — income tax, NI, and payments on account — at three income levels, plus a live calculator so you can run your own numbers right now.
As a sole trader, no tax is deducted at source. You receive your full income, and then — all at once — you pay your entire tax bill in January. For most sole traders this is somewhere between £2,000 and £15,000 in a single payment. The only way to avoid that shock is to treat tax like a recurring cost and set aside money every month.
The question is how much. The answer is not a vague percentage — it is a specific number based on your profit, the 2026–27 HMRC rates, and whether payments on account apply to you. The calculations below give you that number.
Income tax at 2026–27 bands · Class 4 NI at 6% (up to £50,270) and 2% above · Class 2 NI at £179.40 · Personal Allowance of £12,570. These are estimates based on self-employment income only, with no other income sources. If you have PAYE income alongside self-employment, your position is different — use the Taxify mixed-income calculator.
Each scenario assumes a typical expense ratio. Adjust for your own situation — higher expenses mean lower profit and a lower tax bill.
You pay income tax on profit above the Personal Allowance of £12,570. The basic rate is 20% on profit between £12,570 and £50,270. The higher rate is 40% on profit between £50,270 and £125,140. Most sole traders fall entirely within the basic rate band, meaning their effective income tax rate on total profit is well below 20%.
Class 4 NI applies to profit above £12,570 at 6% up to £50,270 and 2% above that. This changed from 9% to 6% in April 2024. If you are using an old calculator or spreadsheet it may still be showing 9% — check before trusting any figure.
Class 2 NI is a flat £179.40 per year for 2026–27, paid if your profit exceeds £12,570. Small but worth including — and it counts towards your State Pension record.
This is where most sole traders get caught out in their first years of trading. If your annual tax bill exceeds £1,000, HMRC requires you to make advance payments towards the following year called payments on account. There are two per year: one due 31 January alongside your current year bill, and one due 31 July.
Each payment on account is 50% of your previous year bill. Your first January is therefore not just your current year bill — it is your current year bill plus 50% of it as an advance on next year.
On a £7,832 bill, your first January payment is £11,748 — the full bill plus a £3,916 first payment on account. Then £3,916 again in July. Most sole traders are not warned about this and it is genuinely painful if you have not planned for it. Once past the first year, the payments largely wash out.
Every pound of legitimate business expense reduces your taxable profit — and therefore your tax bill. At the basic rate, a £1,000 deductible expense saves around £260 in combined income tax and NI. The most commonly missed deductions are:
Home office costs. HMRC allows a flat £6 per week without receipts, or a proportional calculation based on floor space if you want to claim more. Most sole traders who work from home claim nothing.
Mileage. Business travel in your own vehicle can be claimed at 45p per mile for the first 10,000 miles and 25p per mile thereafter. Under-claimed by the majority of sole traders who drive for work.
Equipment and software. Laptops, phones, subscriptions — all deductible if used for business purposes. Partial use means a proportional claim. Your Taxify subscription is a deductible expense.
Professional development. Courses, books, and training directly related to your work are allowable. HMRC does not allow general education, only specific role-relevant development.
Taxify compares your expense ratio to typical benchmarks for your business type. If you are claiming significantly less than average, the AI flags it and explains what you might be missing. The average user finds around 8–12% more in claimable expenses once they start tracking properly.
Taxify calculates your exact tax bill live from your actual transactions — income tax, NI, and the January payment on account. No guessing.
Add your income and expenses. Your bill updates instantly. Free to start, no card needed.
This article is for general guidance only and reflects HMRC rules as of April 2026. Tax rules change — always verify your position with a qualified accountant or directly with HMRC. Taxify provides estimates and guidance, not regulated financial advice. 2026–27 rates: Personal Allowance £12,570, basic rate 20%, Class 4 NI 6% (up to £50,270) then 2%, Class 2 NI £179.40.