UK Self-Employed Tax Calculator
Work out income tax and Class 4 National Insurance on self-employment profits for 2026-27, plus what to set aside and when payments on account fall due.
How to use this calculator
- 1Enter turnover and allowable expenses; tax is charged on the profit, not the turnover.
- 2Add employment or pension income separately, since it uses your personal allowance first.
- 3Use the set-aside percentage as a rule for every invoice paid, rather than working it out in January.
- 4If payments on account apply, budget for the 31 January bill being about 150% of your first-year liability.
How the calculation works
Profit = turnover − expenses. Income tax on total income at 20/40/45%. Class 4 NI = 6% of profit between £12,570 and £50,270, then 2%- profit
- What income tax and Class 4 NI are both charged on — not turnover
- Class 4
- Self-employed National Insurance, at lower rates than the employee equivalent
Class 4 rates are 6% and 2%, against 8% and 2% for employees. The self-employed pay less National Insurance than an employee on the same income, and receive slightly fewer contributory benefits in return.
Class 2 no longer produces a bill for most sole traders. Profits above the small profits threshold are treated as though Class 2 were paid, so the state pension record is preserved without payment.
Payments on account are the cash-flow trap. Once the bill exceeds £1,000, HMRC asks for half of it again twice over as advance payments for the following year — so a first profitable year can require 150% of the bill in a single January payment.
Worked example
£60,000 turnover with £12,000 of expenses
- 1.Profit is £60,000 − £12,000 = £48,000.
- 2.After the £12,570 personal allowance, £35,430 is taxable at 20% = £7,086.
- 3.Class 4 NI: 6% on profit between £12,570 and £48,000 = 6% × £35,430 = £2,125.80.
- 4.Total due is about £9,212, roughly 19% of profit.
Result: About £9,212 — set aside a fifth of profit
Tax on profit, not on turnover
The first thing to get right is the base. Self-employed tax is charged on profit — turnover less allowable expenses — not on what lands in the bank. Someone invoicing £60,000 with £12,000 of genuine costs is taxed on £48,000.
Allowable expenses are those incurred wholly and exclusively for the business: equipment, software, professional insurance, accountancy, travel between clients, and a proportion of home costs where you work from home. Personal spending does not qualify, and mixed-use items can only be claimed in proportion.
Two charges then apply to that profit. Income tax at the ordinary 20%, 40% and 45% rates, and Class 4 National Insurance at 6% between £12,570 and £50,270 and 2% above. Both use the same profit figure but run on their own thresholds.
Payments on account, and the January that hurts
This is the mechanic that catches almost every newly self-employed person, and it is worth understanding before the first bill arrives rather than after.
Once a Self Assessment bill exceeds £1,000, HMRC requires payments on account towards the *following* year — two instalments, each half the current year's liability, due 31 January and 31 July.
In a first profitable year that means the 31 January payment is the whole of last year's bill plus half of it again as the first payment on account: 150% of the liability, in one payment. Someone who set aside exactly their tax bill finds themselves 50% short. From the second year onward it settles into a rhythm, but the first January is a genuine shock and is the reason so many new sole traders are caught out.
Sole trader or limited company
At higher profits the question of incorporating comes up, and the honest answer is that it is finely balanced and turns on more than tax.
A limited company pays corporation tax on profit, and the owner then extracts money as a small salary plus dividends — which carry no National Insurance at all. That structure can beat sole trader taxation at higher profits, though the April 2026 dividend rate rise narrowed the gap. Against it sit real costs: annual accounts, a corporation tax return, a confirmation statement, payroll, and generally an accountant to keep it all straight.
Below roughly £30,000–£40,000 of profit the administrative burden usually outweighs the saving. Above it the calculation deserves running properly, with the accountancy costs included rather than assumed away.
What this assumes, and where it stops
Assumptions
- England, Wales or Northern Ireland rates — Scottish taxpayers have different income tax bands.
- The full personal allowance is available and used by other income first.
- Profits are from a single self-employment on the cash or accruals basis.
- Class 2 is treated as paid, which applies where profits exceed the small profits threshold.
Limitations
- Scottish income tax bands differ and are not modelled, though Class 4 NI is the same across the UK.
- Capital allowances on equipment, the trading allowance and loss relief are excluded.
- Payments on account are flagged from the bill size but their timing against your specific dates is not modelled.
- VAT is separate: registration is compulsory above £90,000 of turnover and changes the picture considerably.
Common questions
How much tax will I pay as a sole trader?
Income tax at 20%, 40% or 45% on profit above the £12,570 personal allowance, plus Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above. On £48,000 of profit that comes to roughly £9,200, or about a fifth. Setting that percentage aside from each invoice as it is paid is far easier than finding it in January.
What are payments on account and why is my first bill so large?
Once your Self Assessment bill exceeds £1,000, HMRC asks for advance payments towards the next year — two instalments of half the current liability, due 31 January and 31 July. In your first profitable year the January payment is therefore the whole bill plus half again, which is 150% of what you expected. It settles down from the second year, but the first January catches almost everyone.
Do I still have to pay Class 2 National Insurance?
Not as a bill, for most sole traders. If your profits are above the small profits threshold you are treated as having paid Class 2, so your state pension record is protected without any payment. If your profits are below that threshold you can still pay Class 2 voluntarily to keep the qualifying year, which is usually worth doing given how cheap it is relative to a year of state pension.
Should I set up a limited company instead?
It depends on profit level and on how much administration you are willing to take on. A company pays corporation tax and lets you take dividends, which carry no National Insurance — that can beat sole trader tax at higher profits, though the April 2026 dividend rate rise narrowed the advantage. Against it: annual accounts, a corporation tax return, payroll and usually an accountant. Below roughly £30,000–£40,000 of profit the extra cost normally outweighs the saving.
Sources
- Self-employed National Insurance rates — HM Revenue & Customs
- Understand your Self Assessment tax bill: payments on account — UK Government
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
Related calculators
Tools people commonly use alongside the uk self-employed tax calculator.