How sole trader tax is calculated
Your taxable profit is turnover minus allowable expenses. On that profit you pay two things:
- Income Tax above your £12,570 Personal Allowance. The allowance shrinks by £1 for every £2 of income over £100,000.
- Class 4 National Insurance: 6% on profits between £12,570 and £50,270, and 2% above that. Class 2 is no longer compulsory.
Worked example
A freelancer with £60,000 of revenue and £5,000 of business expenses has a profit of £55,000.
| Tax | Amount |
|---|---|
| Income Tax | £9,432 |
| Class 4 National Insurance | £2,357 |
| Total | £11,789 |
That is an effective rate of 21.4% of profit, leaving £43,211 to take home. Each extra £100 of profit costs about £42 in tax at this level, so setting aside around 25% of every payment is a safe habit.
2026/27 Income Tax bands (England, Wales, Northern Ireland)
| Taxable income | Rate |
|---|---|
| Personal Allowance: up to £12,570 | 0% |
| Basic rate: £12,571 – £50,270 | 20% |
| Higher rate: £50,271 – £125,140 | 40% |
| Additional rate: over £125,140 | 45% |
What this estimate leaves out
Scottish taxpayers have different Income Tax bands, so this calculator will be out for them. It also assumes no other income (employment, rental, dividends), no pension contributions and no Marriage Allowance or student loan repayments. From April 2026, sole traders with income over £50,000 must use Making Tax Digital for Income Tax.