As a sole trader, you normally pay Income Tax and Class 4 National Insurance on taxable business profit, rather than everything customers pay you. Start with complete records, work out allowable costs, then check your wider tax position. You do not need to learn the whole tax system in one evening.

See the end of year Self Assessment report or explore quarterly reports.

Start with profit, not your bank balance

If customers pay £40,000 and you have £10,000 of allowable business expenses, your starting profit is £30,000. Loans, money you introduce and drawings do not all affect profit in the same way. Under cash basis, receipts and payments generally determine timing; traditional accounting works differently.

Work through a profit example and use the allowable expenses guide.

Income Tax bands for 2026/27

For England, Wales and Northern Ireland, the standard Personal Allowance is £12,570. After allowances, the main rates on non-savings income are 20% on the first £37,700 of taxable income, 40% on the portion from £37,701 to £125,140, and 45% above £125,140. Taxable income means income after allowances, not turnover. Different bands apply to Scottish non-savings income.

Your Personal Allowance falls by £1 for each £2 of adjusted net income above £100,000 and reaches zero at £125,140. Employment and other income can use up your allowance or bands. You do not get a separate Personal Allowance for each business.

National Insurance: Class 4 and Class 2

For 2026/27, Class 4 is 6% on self-employed profits above £12,570 up to £50,270, then 2% above £50,270. The main rate is not 9%. Age and special circumstances can affect liability.

At profits of £7,105 or more, Class 2 is normally treated as paid without a separate charge. Below that level, eligible people can consider voluntary Class 2, currently £3.65 a week, to protect their National Insurance record. Check your record before paying voluntarily.

A £30,000 profit example

This assumes England, Wales or Northern Ireland, full standard allowance, no other income, reliefs, student loans, CIS credits or other adjustments. It excludes payments on account. Scotland and more complex circumstances need a different calculation.

Registration, filing and payment dates

If gross trading income exceeds £1,000, you will normally need Self Assessment registration. The usual notification deadline is 5 October after the tax year ends. The UK tax year runs from 6 April to 5 April.

For 2025/26, the normal online return and balancing-payment deadline is 31 January 2027. For 2026/27, it is 31 January 2028. Paper returns normally have an earlier 31 October deadline. Read how to register, prepare your return and pay HMRC.

Payments on account and CIS deductions

Payments on account are advance payments towards the next tax year, normally due on 31 January and 31 July. Each is usually half the previous year’s relevant bill. Exceptions include a bill below £1,000 or more than 80% of tax paid outside Self Assessment. Your HMRC account shows what is due.

CIS deductions are tax already deducted, not business expenses. Record gross income and keep the contractor’s deduction statement. Credits and payments already made must be allocated to the correct tax year. See payments on account explained.

VAT and Making Tax Digital

VAT is separate from Income Tax. The normal UK registration threshold is £90,000 of VAT-taxable turnover, checked on a rolling 12-month basis, with a separate forward-looking 30-day test. Use the VAT registration guide if you are approaching it.

MTD for Income Tax starts from April 2026 for qualifying income over £50,000, April 2027 over £30,000 and April 2028 over £20,000, subject to the relevant reference year and exemptions. It uses gross qualifying self-employment and property income. Quarterly reporting does not mean quarterly tax payments. Read the complete MTD guide.

What to do each week

• Record customer income and allowable costs, including cash.
• Save receipts and keep notes for mixed personal and business purchases.
• Review profit and put money aside using an estimate based on your circumstances.
• Check the tax calculator and compare it with your full tax position before relying on the result.

Sources and further help

Checked 25 October 2026. Income Tax rates · National Insurance · Payments on account · VAT registration. Guidance for straightforward sole traders; individual circumstances can change the answer.