Tax year: 2026/27 — 6 April 2026 to 5 April 2027. Reviewed 6 October 2026.
Running your business as a sole trader means that your business profit forms part of your personal tax calculation. Your turnover, the money you take out and your taxable profit are different figures. Knowing which one matters helps you budget without confusing sales with spendable income.
Start with profit, not drawings
Work out business income and the expenses that qualify under your accounting method. Taking money from the business account for personal use does not reduce taxable profit. Conversely, leaving money in the account does not normally stop it being taxable.
Keep supporting records and distinguish everyday costs from purchases that need a different treatment. Our sole trader expenses guide explains the practical starting points.
Income Tax for 2026/27
The standard Personal Allowance is £12,570. With the full allowance and no other income, the main England, Wales and Northern Ireland rates are 20% up to total income of £50,270, 40% above that up to £125,140, and 45% above £125,140. Scottish rates on non-savings, non-dividend income differ.
The allowance reduces when adjusted net income exceeds £100,000. Other income can use your allowance and tax bands, so a side business cannot assume it has a separate tax-free £12,570.
National Insurance is a separate calculation
For qualifying self-employed profits, Class 4 is 6% on the slice above £12,570 up to £50,270, and 2% above that. Class 2 treatment depends on your profits and circumstances; low-profit years may merit checking your National Insurance record rather than assuming a contribution will improve your pension.
Illustrative example: with £28,000 profit, no other income and the full allowance, Income Tax is £3,086 and Class 4 is £925.80, giving £4,011.80 combined before other adjustments. This is a calculation example, not a client result.
Does Making Tax Digital apply?
Entry from April 2026 is assessed using qualifying gross self-employment and property income for 2024/25, with a threshold of more than £50,000. A new business exceeding that amount in 2026/27 does not automatically enter from April 2026 solely because of its current turnover. Check the reference year, combined income and any exemption.
Use our MTD readiness checker and MTD support service to prepare the appropriate records.
Which January deadline are you planning for?
The usual online deadline of 31 January 2027 relates to the 2025/26 return, not the return for income earned during 2026/27. The usual online deadline for 2026/27 is 31 January 2028. Payments on account can fall earlier, so your cash budget should follow the actual HMRC calculation.
Build a tax reserve you can explain
Review profit regularly, include income from other sources and update your reserve when circumstances change. A fixed percentage of sales may be misleading if margins vary. See payments on account and our self-employed tax return service, or book a consultation.
General information, not individual advice. Sources: Income Tax, self-employed NI, MTD entry rules and Self Assessment deadlines.
Talk it through with Digivolve
From registration to bookkeeping, MTD and your tax return, we look after sole traders across Sussex for a fixed monthly fee.