Answers · UK 2025/26
How much of my income should I set aside for tax as a sole trader?
A common rule is to save around 25-30% of profit if you stay within the basic rate, rising toward 40-50% once profit pushes into the higher-rate band. This covers income tax plus Class 4 NI at 6%. Remember payments on account can mean funding roughly 150% of your first bill.
Full answer
There is no fixed rule, but setting aside a percentage of profit as you earn it prevents a January cash crisis. For basic-rate profits, budget roughly 25-30% to cover 20% income tax plus 6% Class 4 NI. Once profit exceeds GBP 50,270 the marginal cost jumps to 40% income tax plus 2% NI, so the proportion you reserve should rise. Worked example: a sole trader expects GBP 45,000 profit in 2026/27. After the GBP 12,570 Personal Allowance, GBP 32,430 is taxed at 20% = GBP 6,486. Class 4 NI is 6% on GBP 32,430 = GBP 1,945.80. Total liability is GBP 8,431.80, which is about 18.7% of GBP 45,000 profit, so reserving 25% (GBP 11,250) comfortably covers it with a buffer. The buffer matters because of payments on account. On the first self-assessment, you pay that GBP 8,431.80 plus a 50% advance (GBP 4,215.90) on 31 January, then another GBP 4,215.90 on 31 July. So in your first year you need closer to 150% of the headline bill in cash. From then on it smooths out. Watch thresholds that bite suddenly: profits over GBP 50,270 hit 40% tax, and over GBP 100,000 the Personal Allowance tapers, creating a 60% effective trap to GBP 125,140. Use the self-employed-tax calculator to set an accurate reserve, and verify rates at gov.uk.
Try the calculator
This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.