How Much to Set Aside for Tax as a New Sole Trader 2026/27
New sole traders are often blindsided by a tax bill that includes income tax, Class 4 National Insurance and a payment on account. Here is how much of each invoice to set aside in 2026/27, with a clear worked example.
The first bill shock
The single biggest cause of stress for new sole traders is the first self assessment bill. The profit felt like spending money during the year, but in January HMRC wants income tax, Class 4 National Insurance and often a payment on account toward next year all at once. The fix is simple: ring-fence tax from every invoice as it lands.
What you actually owe
For 2026/27 a sole trader pays:
- Income tax: 0% on the first GBP 12,570 (personal allowance), 20% to taxable income of GBP 37,700, 40% to GBP 125,140, 45% above.
- Class 4 National Insurance: 6% on profits between GBP 12,570 and GBP 50,270, then 2% above.
So a typical basic-rate sole trader faces 20% income tax plus 6% Class 4 on the same slice of profit, an effective 26% on profit between GBP 12,570 and GBP 50,270.
A worked example
Say your profit (income less allowable expenses) is GBP 40,000 in 2026/27.
- Personal allowance: first GBP 12,570 is tax-free.
- Taxable income: GBP 40,000 - GBP 12,570 = GBP 27,430, all at 20% = GBP 5,486 income tax.
- Class 4 NI: GBP 40,000 - GBP 12,570 = GBP 27,430 at 6% = GBP 1,645.80.
- Total tax and NI: about GBP 7,132, which is roughly 17.8% of your GBP 40,000 profit overall.
The overall percentage is below 26% because the personal allowance shelters the first chunk. But beware year one: if this is your first self assessment, you also pay 50% of this bill again as a first payment on account.
The first-year double hit
Because your first bill exceeds GBP 1,000, you usually pay it plus a payment on account:
- Balancing payment for 2026/27: about GBP 7,132, due 31 January 2028.
- First payment on account for 2027/28: 50% of that, about GBP 3,566, also due 31 January 2028.
- Second payment on account: another GBP 3,566, due 31 July 2028.
So your January demand is around GBP 10,698, not GBP 7,132.
A simple set-aside rule
- Open a separate savings account purely for tax.
- For basic-rate profits, move 30% of every payment received into it.
- Add a buffer in year one for the payment on account.
- Review at the half-year point to check you are on track.
- Keep records of allowable expenses to reduce taxable profit.
The bottom line
A new sole trader on GBP 40,000 profit owes roughly GBP 7,100 in income tax and Class 4 National Insurance for 2026/27, but the first January bill can be around GBP 10,700 once a payment on account is added. Saving 30% of income as you go keeps you covered.
Estimate your liability with the calchub.uk self-employed tax calculator, and confirm the rates, thresholds and payment on account rules on gov.uk before your first 31 January deadline.
Frequently asked questions
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