Tax year: 2026/27 | Last reviewed: 2 October 2026
The most common question we hear from new sole traders is simple: how much of what I earn should I put aside for tax? The honest answer is that it depends on your profit, but there are clear rules of thumb. The examples below use 2026/27 rates for England, Wales and Northern Ireland. Scotland has different income tax bands.
What a sole trader pays
- Income Tax on profit above the £12,570 Personal Allowance: 20% up to £50,270, 40% up to £125,140 and 45% above
- Class 4 National Insurance: 6% on profits between £12,570 and £50,270, then 2% above
- Class 2 NI is no longer compulsory. Those with profits above £7,105 get State Pension credit automatically
Tax is worked out on profit, which is your income less allowable expenses. Every legitimate expense you record lowers the amount you need to save.
Worked examples for 2026/27
| Profit | Income Tax | Class 4 NI | Total | % of profit |
|---|---|---|---|---|
| £30,000 | £3,486 | £1,046 | £4,532 | 15% |
| £50,000 | £7,486 | £2,246 | £9,732 | 19% |
| £70,000 | £15,432 | £2,657 | £18,089 | 26% |
| £110,000 | £33,432 | £3,457 | £36,889 | 34% |
At £110,000 the effective rate jumps because the Personal Allowance is reduced by £1 for every £2 of income over £100,000. Between £100,000 and £125,140 the marginal rate is effectively 60% plus NI. Pension contributions can bring income back below £100,000. See our guide to the £60,000 and £100,000 tax traps.
A simple rule of thumb
- Profit up to about £50,000: save 20% of profit
- Profit £50,000 to £100,000: save 25% to 30%
- Profit over £100,000: save 35% or more
- VAT registered? Save the VAT on top. It is never your money
If you are in your first or second year, add extra for payments on account. Your first January bill can include half of next year’s tax as well.
How to make saving painless
- Open a separate business bank account so business and personal money never mix.
- Open a linked savings account and move your tax percentage across every time a customer pays.
- Keep bookkeeping current in software such as Xero or FreeAgent, so you can see profit as you go.
- Review the figure each quarter. If you are in Making Tax Digital, your quarterly updates give you an estimate anyway.
Our client Leigh moved from paper invoices to digital records in a week. Read Leigh’s story.
When to think about a limited company
Once profits are consistently above around £50,000 and you do not need all the money personally, a limited company can reduce the overall tax rate. It brings extra admin and costs, so it is a decision to model properly rather than assume. Our salary and dividend calculator gives a first comparison.
FAQs
Do I pay tax on my turnover or profit?
Profit. Income Tax and Class 4 NI are charged on turnover less allowable expenses.
Is 30% too much to save?
Not if your profits are rising or you are new to self-employment. Any surplus after January is yours to keep.
Does the first £12,570 really have no tax?
Yes, if you have no other income using your Personal Allowance. A job alongside the business uses it first.
Talk it through with Digivolve
We give every sole trader client a simple savings figure each month based on their actual bookkeeping, so January is never a surprise.
This article is general information based on the rules for the 2026/27 tax year as at October 2026. It is not personal tax advice. Rates and thresholds can change, so please speak to us before acting.