Self Employed Tax Calculator

A sole trader’s Self Assessment liability is four separate charges on the same profit figure, worked out in order. First the profit itself: turnover less either your allowable expenses or the £1,000 trading allowance, never both. Then income tax on that profit, using exactly the same bands as employment income — HMRC does not tax trading profit at special rates. Then Class 4 National Insurance, which has its own thresholds. Then student loan, if you have one, charged on your total income for the year.

class 4 = 6% × (min(profit, £50,270) − £12,570) + 2% × (profit − £50,270)

Take Aled’s £45,000 of profit. The Personal Allowance covers the first £12,570, leaving £32,430 taxable, all of it inside the basic rate band, so income tax is 20% of that — £6,486.00. Class 4 runs on the same £32,430 but at 6%, giving £1,945.80. Nothing reaches the £50,270 upper profits limit, so the 2% rate never applies. The bill is £8,431.80, which is 18.7% of profit — and the marginal cost of the next pound he earns is 26%, because both charges apply to it.

Class 2 National Insurance is the layer that has changed most recently and confuses the most people. It is no longer charged. At profits of £7,105 or more it is, in HMRC’s words, “treated as having been paid to protect your National Insurance record”, so the year counts towards your State Pension and costs nothing. Below that threshold it is neither charged nor credited, which is a materially different position from being exempt — the year simply does not count unless you choose to pay for it.

Payments on account are advance instalments towards next year’s tax, and they are the single largest gap between what a sole trader expects to pay and what actually leaves the account. HMRC applies them automatically once two conditions are met. The bill must be at least £1,000 — gov.uk exempts you if “the amount of tax you owed last year was less than £1,000”. And no more than 80% of the tax can already have been collected elsewhere: you are also exempt if “last year you paid more than 80% of the tax you owed outside of Self Assessment”. Clear both and each instalment is half of last year’s liability, due on 31 January and 31 July.

The arithmetic that catches people is what happens the first time. On 31 January you settle the year that has just ended in full, and on the same day you pay the first instalment towards the year that is already running. There is nothing behind you to offset it, so the total is the bill plus half the bill: 150%. gov.uk’s own example puts it plainly — a £3,000 bill for a taxpayer who made no payments on account last year produces “total tax to pay by midnight on 31 January” of £4,500, then another £1,500 the following July.

It only happens once. In the second year the same £3,000 bill is already covered by £1,800 of instalments paid during the year, so the balancing payment is £1,200 and January costs £2,700 — gov.uk’s other worked example, and the steady state everyone eventually settles into. The trap is that the shape of the first year is nowhere on a tax return until the return is filed, which is exactly when it is too late to save for it. Enter what you have already paid into the calculator above to switch between the two shapes.

One consistency note, because gov.uk does not settle it: the 80% test needs a definition of “the tax you owed”, and this calculator uses income tax only on both sides — PAYE deductions against total income tax for the year. Class 4 and student loan are excluded from the comparison. Widening the measure would move the percentage by several points and flip cases that sit near the line, so the choice is stated here rather than buried. Nia in the examples below lands at 76.07% on that measure, just inside the range where payments on account still apply.

The bill itself is unremarkable: £6,486.00 of income tax and £1,945.80 of Class 4, £8,431.80 in total, which is 18.7% of profit. What surprises people is the date. Because the bill clears £1,000, HMRC adds a first payment on account of £4,215.90, so £12,647.70 leaves the account on 31 January 2027 and another £4,215.90 on 31 July 2027. Set aside 28.1% of profit for that first January, not the 18.7% the bill implies.

Class 4 National Insurance is £0.00. Her combined income is £46,000, but Class 4 tests the £8,000 of profit against the £12,570 lower profits limit and stops there. Income tax does stack: the profit sits on top of the salary and is taxed at 20%, adding £1,600.00, and Plan 2 takes £720.00 more, for a £2,320.00 bill. Then the sting: PAYE covered 76.07% of her income tax for the year, just under the 80% exemption, so payments on account apply anyway and £3,120.00 is due in January.

The Personal Allowance has tapered from £12,570 to £2,570.00, because it falls by £1 for every £2 above £100,000. Income tax is £39,432.00 and Class 4 £3,656.60, a bill of £43,088.60 and a January payment of £64,632.90. The number that should drive his decisions is neither: his marginal rate is 62%, because each extra pound of profit is taxed at 40% and also removes 50p of allowance that was itself being taxed. A pension contribution made here is worth more than the same contribution at any other income in the UK.

Income tax of £13,182.05 spreads across four Scottish bands rather than two, and Class 4 adds £2,456.60 for a £15,638.65 bill. National Insurance is reserved to Westminster and identical to the rest of the UK, so the whole difference sits in the income tax line. Her marginal rate now is 44%, but it was higher a few thousand pounds ago: between £43,663 and £50,270 of profit the Scottish higher rate and the full Class 4 rate overlap.

Claiming the £1,000 allowance leaves £400.00 of taxable profit rather than the £1,100.00 the expenses route would give — £700.00 less profit and £140.00 less tax. The bill is £80.00, comfortably under the £1,000 floor, so no payments on account are due at all. Two things still bite: gross income passed £1,000, so a return is required whatever the tax comes to, and £400.00 of profit is below the £7,105 Small Profits Threshold, so no National Insurance year is credited unless she pays £189.80 voluntarily.

Income tax on trading profit is devolved to the Scottish Parliament and collected by HMRC; National Insurance is reserved to Westminster. A Scottish sole trader therefore runs their profit through six income tax bands rather than three, while paying exactly the same Class 4 as a trader in Cardiff or Belfast. The bands for 2026/27 are a starter rate of 19%, basic 20%, intermediate 21%, higher 42% from £43,663, advanced 45% from £75,001 and top 48% above £125,140.

The interesting consequence is a marginal rate that goes down as profit goes up. Scotland’s higher rate starts at £43,663, but the Class 4 upper profits limit — where National Insurance drops from 6% to 2% — is a reserved figure fixed at £50,270 for the whole UK. Between those two points a Scottish sole trader pays 42% of income tax and 6% of Class 4 on the same pound: 48%. Push past £50,270 and the marginal rate falls to 44%. The equivalent stretch in England, Wales and Northern Ireland never arises, because the higher rate and the upper profits limit both sit at £50,270 and move together.

Fiona in the examples above sits just past that stretch on £60,000 of profit, paying £13,182.05 of income tax where the same profit in England would attract £11,432.00 — a difference of £1,750.05. Her Class 4 is identical either side of the border.

Every rate on this page, and where it comes from

Do self-employed people pay 40% tax?

Only on the slice of profit above £50,270, and never on the whole of it. The 40% higher rate is a marginal rate applied to one band, not an average applied to your income. Below that band, profit between £12,570 and £50,270 is taxed at 20%, and the first £12,570 is not taxed at all. What the 40% figure does understate is National Insurance sitting alongside it. Add Class 4 and the real combined rate on a pound of profit is 26% in the basic band and 42% in the higher band — so the higher band costs a little more than 40%, while the basic band costs noticeably more than 20%. Averaged across a whole year the number is lower again: Aled's £45,000 of profit above produces a total bill of 18.7%, despite part of it being taxed at 20% and all of it carrying Class 4.

How much can you earn self-employed before paying tax?

£12,570 of profit, and the same figure works for both taxes: for 2026/27 the Personal Allowance and the Class 4 lower profits limit are both £12,570, so income tax and National Insurance start at the same point. The word doing the work is profit. It is turnover minus allowable expenses, so a trader invoicing £30,000 with £18,000 of genuine costs has £12,000 of profit and owes nothing, while the same £30,000 with no costs owes on £17,430. Two things complicate the picture. If you also have a job, the salary uses up the Personal Allowance first, so the first pound of profit is taxed at whatever rate the salary has already reached. And if the profit is your only income and stays under £7,105, you earn no National Insurance qualifying year for it.

Do payments on account mean I am paying tax twice?

No — you are paying eighteen months of tax within one twelve-month stretch, once, at the point you enter the system. Every payment on account is credited against the following year's bill. In your first payment-on-account January you settle the year that has ended in full and hand over half of it again as an advance on the year running, which is where the 150% figure comes from. The following January you settle that year too, but two instalments have already been paid against it, so only the balance falls due alongside the next advance. gov.uk's own worked example shows both shapes: a £3,000 bill with no prior payments costs £4,500 in January, while the same £3,000 bill with £1,800 of instalments already paid costs £2,700. The cash-flow hit happens once. What makes it feel like double taxation is that the advance is calculated from a year that has ended rather than the year it is paying for, so it arrives before you know whether it is right.

Do I still pay Class 2 National Insurance in 2026/27?

Not as a charge. For 2026/27 Class 2 is not collected from anyone with profits at or above the Small Profits Threshold of £7,105; gov.uk says contributions are "treated as having been paid to protect your National Insurance record", so the qualifying year towards your State Pension is credited free. Below £7,105 nothing is credited and nothing is charged, which is the part that costs people money quietly — a low-profit year simply produces a gap in the record unless you volunteer to fill it. Voluntary Class 2 costs £3.65 a week, £189.80 for the year, and buys the same qualifying year that Class 3 charges £18.40 a week — £956.80 — for. That makes voluntary Class 2 the cheapest qualifying year available anywhere in the system, at roughly a fifth of the Class 3 price. You need 35 qualifying years for a full new State Pension, so it is worth checking your record before deciding a lean year does not matter.

Should I claim the £1,000 trading allowance or my actual expenses?

Whichever is larger, and never both — HMRC is explicit that "you cannot deduct any other expenses or allowances if you claim the allowances". The decision is arithmetic: if your genuine allowable costs come to less than £1,000, claim the allowance; if they come to more, claim the costs. The calculator above shows both routes side by side so you can see the gap rather than guess it. Three restrictions decide it for you in some cases. The allowance is unavailable on income from a company you or a connected person controls, from a partnership you are a partner in, or from your own or your spouse's employer — rules that exist to stop salary being repackaged as £1,000 of tax-free trading income. It also cannot create a loss, so it is worth nothing beyond your turnover. And if you have genuinely made a loss on the expenses route, claiming the allowance instead throws away loss relief that could be set against other income, which is usually worth more than the paperwork it saves.

How do I work out tax if I am employed and self-employed at the same time?

Assess income tax on the two together and National Insurance on each separately. For income tax, the salary fills the Personal Allowance and the lower bands first, and the trading profit sits on top — so the profit is taxed at your highest rate, not at the basic rate, and a modest side income can be taxed at 40% while the salary funding your life is mostly taxed at 20%. Payroll has already collected tax on the salary alone, so Self Assessment collects the difference between the two figures. National Insurance does not work this way at all: the salary carries Class 1 through payroll on its own thresholds, and the profit carries Class 4 on its own, with neither aware of the other. That is why the calculator above asks for the two figures separately rather than adding them for you, and why the Class 4 line can read zero on a combined income well into the higher-rate band. Class 1 already deducted from your salary never appears on the Self Assessment bill, so do not budget for it twice.

Can I reduce my payments on account if my income has dropped?

Yes. You can apply to reduce them through your online Self Assessment account or on form SA303, at any point before the payment falls due, and you do not need HMRC's agreement first — you state the figure you expect to owe and the instalments are recalculated to half of it. This is the right move when a contract has ended, when you have gone back into employment, or when a one-off gain inflated last year's bill. The discipline is in the estimate rather than the claim. If the year turns out better than you predicted and you reduced too far, HMRC charges late payment interest at 7.75% — the rate since 9 January 2026, set at the Bank of England base rate plus four points — running from the original due date rather than from the date you found out. Reduce to a figure you can defend, not to zero, and revisit it in July when you have half a year of real numbers.

When do I have to register for Self Assessment as a sole trader?

By 5 October following the end of the tax year in which your gross trading income first exceeded £1,000. For trading in the 2025/26 tax year, which ended on 5 April 2026, that deadline is 5 October 2026; the return is then filed online and paid by 31 January 2027. Registering gets you a Unique Taxpayer Reference, which arrives by post and can take a couple of weeks, so leaving it to January means missing the filing deadline even if you have the money ready. Note that the test is gross income rather than profit, and that it is worth registering voluntarily below the threshold in some situations — to claim loss relief, to pay voluntary Class 2 for a qualifying year, or because a benefit such as Tax-Free Childcare or Maternity Allowance depends on declared self-employment.

Do sole traders pay different tax in Scotland?

Income tax yes, National Insurance no. Income tax on earned income — including trading profit — is devolved, and the Scottish Parliament sets six bands rather than the three used in England, Wales and Northern Ireland. National Insurance is reserved to Westminster, so Class 2 and Class 4 are identical across the UK, as are the £12,570 Personal Allowance and its taper, which remain UK-wide. Dividends are also taxed at UK-wide rates wherever you live, which matters if you are weighing up incorporating. Whether you are a Scottish taxpayer is decided by where your main home is for most of the tax year, not by where your customers are or where the work is done, and HMRC applies it through an S prefix on your tax code. If you move across the border part-way through a year, the year is assessed on where you lived longest.

Do I need to use Making Tax Digital for Income Tax?

If your qualifying income from self-employment and property was over £50,000 on your 2024/25 return, then yes — Making Tax Digital for Income Tax has been mandatory for you since 6 April 2026. That means keeping digital records and sending a quarterly update to HMRC from compatible software, then a final declaration after the year end, instead of one annual return. Qualifying income is gross income before expenses, so a trader with £60,000 of turnover and £20,000 of costs is inside the regime despite £40,000 of profit — a distinction that catches people who assume the test mirrors the tax. The threshold drops to £30,000 from 6 April 2027, measured on the 2025/26 return, and to £20,000 from 6 April 2028. Payment dates do not change: quarterly updates are reporting, not instalments, and the money is still due on 31 January and 31 July.

What happens if I miss the 31 January deadline?

Two separate penalty stacks run, one for filing late and one for paying late, and you can be caught by both at once. Filing late costs £100 immediately, even if you owe no tax at all and even if you are due a refund. After three months, daily penalties of £10 start and run to a £900 cap; at six months and again at twelve, a further 5% of the tax due or £300, whichever is greater, is added. Paying late is charged separately at 5% of the unpaid tax at 30 days, at six months and at twelve months, with interest at 7.75% accruing throughout. The practical conclusion is to file on time even when you cannot pay: filing costs nothing and stops the larger stack, and HMRC's Time to Pay service can spread the balance once the return is in.

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

Work it out from your own numbers rather than from a rule of thumb, because the honest answer moves a lot. On profit in the basic band the bill is income tax plus Class 4 at a combined 26% on each pound above £12,570, which for £45,000 of profit averages 18.7% across the whole year. Above £50,270 the marginal cost rises to 42%, so the average climbs steadily with profit. Then add payments on account, which lift the first January to roughly half as much again: 28.1% of profit in Aled's case. A workable habit is to move a fixed percentage of every payment received into a separate account on the day it lands, set at the January figure this calculator gives rather than the annual bill, and to leave the July instalment in there too. Traders who set aside a flat 20% are usually reproducing their income tax and forgetting National Insurance entirely.