How Much Tax Do I Pay as a Sole Trader in 2026/27?

Working out exactly how much tax you owe as a sole trader takes a bit of patience, mostly because the bill is made up of three separate calculations that sit on top of each other. Plenty of articles cover each piece in isolation. This post brings them together, using the 2026/27 rates, and works through the maths at four different profit levels to help you understand the calculations.

By the end, you will get an idea of how to calculate what you owe on your specific profit, and roughly what percentage of every pound you earn you should be saving each month.

Before we walk through how the calculation works, here is the calculator that does the maths for you. Enter your annual profit, select your student loan plan if you have one, and the calculator will instantly show your income tax, Class 4 National Insurance, any student loan repayment, and your payment on account based on confirmed 2026/27 rates. If you want to understand where each number comes from, the rest of the post walks through it step by step.

The Three Things That Make Up Your Tax Bill.

Your January bill as a sole trader is made up of income tax, Class 4 National Insurance, and student loan repayment if you have one. They sit on top of each other, apply to the same profit figure, and are calculated separately with different rates and thresholds. There is also a fourth element, payment on account, which is not technically tax but lands on the same January due date and meaningfully changes the size of your first tax bill.

It is worth working through each one before looking at the worked examples.

1. Income Tax

For 2026/27 the personal allowance is £12,570, the basic rate of 20% applies between £12,571 and £50,270, the higher rate of 40% applies between £50,271 and £125,140, and the additional rate of 45% applies above £125,140.

One thing worth being clear about, if your profit is £55,000, you do not pay 40% on all of it. You pay nothing on the first £12,570, 20% on the slice between £12,571 and £50,270, and 40% on the slice between £50,271 and £55,000. Only the income above the higher rate threshold is taxed at the higher rate.

If your profit pushes you above £100,000, the personal allowance starts being withdrawn at a rate of £1 for every £2 you earn above £100,000. By £125,140 the personal allowance is gone entirely. This creates an effective tax rate of 60% on income between £100,000 and £125,140, which is worth thinking about if you are close to that band.

2. Class 4 National Insurance

Class 4 NI runs alongside income tax on the same profit. For 2026/27 the first £12,570 of profit is at 0%. The slice between £12,571 and £50,270 is at 6%. Anything above £50,270 is at 2%.

The rate above £50,270 dropping from 6% to 2% looks counter-intuitive but it is how the system is designed. It means the combined hit on income above £50,270 is 42% rather than 46% , which is something to keep in mind when planning around the higher rate threshold.

Class 2 National Insurance, which used to be a separate weekly charge, was abolished from April 2024. You will sometimes see Class 2 mentioned in older blog posts because it was a feature of the system for decades. It is no longer payable. The only NI you pay as a sole trader is Class 4, calculated automatically as part of your Self Assessment return.

You can still voluntarily pay Class 2 if your profits are below £6,845 and you want to protect your State Pension qualifying years for that tax year. Our post on registering as self-employed covers how this works in the first year of trading and the simple check that protects you from losing qualifying years without realising.

Most sole traders earning above the personal allowance no longer need to think about Class 2 at all.

3. Student Loan Repayment

If you have a UK student loan and your profit crosses the relevant threshold, repayments are calculated through your Self Assessment return and added to your January bill. The thresholds for 2026/27 depend on which plan you are on.

Plan 1, for students who started before September 2012 in England or Wales, has a threshold of £26,900 and a rate of 9%.

Plan 2, for students who started university between September 2012 and August 2023 in England or Wales, has a threshold of £29,385 and a rate of 9%

Plan 3, the postgraduate plan, has a threshold of £21,000 and a rate of 6%

Plan 4, the Scottish plan, has a threshold of £33,795 and a rate of 9%

Plan 5, for students who started in England in September 2023 or later, has a threshold of £25,000 and a rate of 9%

If you have both an undergraduate loan and a postgraduate loan, the rates stack. You pay 9% on income above the undergraduate threshold and 6% on income above the postgraduate threshold, both on the same profit. This is a meaningful additional cost for anyone with both loans and it surprises people every year.

Payment on Account.

If your total tax bill, which includes income tax and Class 4 NI but not student loan, exceeds £1,000, HMRC requires you to make payments on account toward the following year's bill.

The mechanics work like this:

You file your 2026/27 tax return by 31 January 2028. Alongside paying that 2026/27 tax bill, you also pay a first payment on account toward 2027/28, which is half of your 2026/27 tax bill. Then on 31 July 2028 you pay the second half. By the time you file your 2027/28 return in January 2029, the equivalent of a full year's tax has already been paid in advance.

The practical effect is that your first January bill is 150 percent of your tax bill, not 100 percent. If your tax bill is £4,000, your January 2028 payment is £6,000. The extra £2,000 is the first payment on account for the following year.

If you have not been told about this in advance, the first January is a difficult conversation with yourself. If you have, it is just part of the system.

Four Worked Examples

The examples below use 2026/27 rates and assume no pension contributions, no other income and no married couple's allowance. Adjustments for any of those would reduce the bill further.

a) Profit of £18,000, no student loan

Income tax is £12,570 at 0% and £5,430 at 20%, which is £1,086.

Class 4 NI is £12,570 at 0% and £5,430 at 6% which is £326.

Total tax bill is £1,412.

Because this is above £1,000, payment on account applies. The first payment on account for the following year is £706.

Total January 2028 payment is £2,118, (£1,412 + £706) with a second payment on account of £706 due in July 2028.

To cover this comfortably, around 12% of profit needs to be saved each month. Out of every £1,500 monthly profit, around £180 goes into a separate tax savings account.

b) Profit of £35,000, with a Plan 2 student loan

Income tax is £12,570 at 0%,

£22,430 at 20%, which is £4,486.

Class 4 NI is £12,570 at 0% and £22,430 at 6%, which is £1,345.80

Student loan is £5,615 above the £29,385 threshold at 9% , which is £505.35

Total tax bill is £6,337.15

Payment on account is calculated on income tax and NI only, not student loan. So half of £5,831.80 is £2,916.

Total January 2028 payment is £9,253, with a second payment on account of £2,916 in July 2028.

The monthly set-aside should be around 22% of profit.

c ) Profit of £55,000, no student loan.

Income tax is £12,570 at 0% £37,700 at 20% plus £4,730 at 40%. That comes to £7,540 plus £1,892, which is £9,432.

Class 4 NI is £12,570 at 0%, £37,700 at 6% plus £4,730 at 2%. That comes to £2,262 plus £94.60 which is £2,356.60

Total tax bill is £11,789.

Payment on account is half of that, £5,895.

Total January 2028 payment is £17,684, with a second payment on account of £5,895 in July 2028.

The monthly set-aside should be around 30% of profit.

This sole trader also crosses the £50,000 threshold for Making Tax Digital for Income Tax, which means they need to be using MTD-compatible software from 6 April 2026.

Our main MTD guide walks through what MTD requires in detail, and our guide to choosing MTD software covers the practical software question."

Profit of £85,000, with a Plan 2 student loan

Income tax is £37,700 at 20% plus £34,730 at 40%. That comes to £7,540 plus £13,892, which is £21,432.

Class 4 NI is £37,700 at 6% plus £34,730 at 2%. That comes to £2,262 plus £695, which is £2,957.

Student loan is £55,615 above the £29,385 threshold at 9% , which is £5,005.

Total tax bill is £29,394.

Payment on account is calculated on the £24,389 of income tax and NI, so half is £12,195.

Total January 2028 payment is £41,589, with a second payment on account of £12,195 in July 2028.

The monthly set-aside should be around 35% of profit.

What the Examples Show

A few observations across the four.

Your effective tax rate, which is the percentage of profit that goes to HMRC, rises with profit. At

£18,000 it is around 8%.

£35,000 it is around 18%.

£55,000 it is around 21% .

£85,000 it is around 35%.

The gap between your headline tax calculation and your actual January bill widens significantly once payment on account kicks in. In the first year it applies, the bill is 150% of what most calculations alone would suggest.

Student loans add meaningful amounts to the bill. The £505 in the £35,000 example and the £5,005 in the £85,000 example are real money that is easy to forget about until the January bill arrives.

What to Do With This Information

Three practical steps.

Work out your annualised profit. Take your year-to-date profit and project it forward. Pick the example closest to your level and use the set-aside percentage as your starting point.

Open a separate savings account you do not touch. The moment money lands in your business account, move the relevant percentage straight into the savings account. Treat it as money that has already left your control.

Adjust as your profit changes. If your profit is growing, save a little more than the calculation suggests because next year's payment on account will be based on a smaller previous-year figure. If your profit is shrinking, you can apply to reduce your payments on account through your Self Assessment online account, but only if you have a genuine reason to expect lower profits.

The System That Does the Maths for You.

The calculations above are doable by hand but they are not the kind of thing you want to be redoing every month, especially as your profit changes through the year.

The UK Sole Trader Tax Template runs all of these calculations automatically. Income tax, Class 4 NI, student loan and payment on account, all based on your actual records and the confirmed 2026/27 rates. You enter your income and expenses as they happen, and the template shows you exactly what you owe at any point in the year.

Get the UK Sole Trader Tax Template, £9.99 →

If your situation is more complex than these examples, perhaps you have multiple income streams, you are close to the £100,000 personal allowance taper, or you are weighing up whether to incorporate, a Done With You session will walk through your specific numbers and give you a clear plan.