Sole Trader Tax Calculator

On £40,000 of profit a UK sole trader pays £5,486 of Income Tax plus £1,645.80 of Class 4 National Insurance — £7,131.80 total — keeping £32,868.20. Class 2 needs no payment at this profit, but payments on account roughly double the January bill. Enter your own profit below.

Figures checked against 2026/27 GOV.UK rates · Reviewed October 2026

How sole trader Income Tax works

Profit faces Income Tax after the £12,570 Personal Allowance: 20% from £12,571 to £50,270, 40% from £50,271 to £125,140, and 45% above, per the current rates on GOV.UK. Above £100,000 of profit the allowance tapers by £1 for every £2, so the calculator shrinks it automatically. There is no separate "self-employment tax" in the UK — Income Tax plus National Insurance below is the whole bill.

Formula: taxable = profit − Personal Allowance (£12,570, tapered above £100,000); Income Tax at 20/40/45 on the bands.

Class 4 National Insurance

The second layer: 6% on profits from £12,570 to £50,270 and 2% on profits above £50,270, per the current rates on GOV.UK. On £40,000 of profit that is 6% × £27,430 = £1,645.80 — no higher band reached. Push profit to £60,000 and the higher slice adds 2% × £9,730 = £194.60, taking Class 4 to £2,456.60. Employees never see this charge directly; the self-employed pay both halves of the bargain, which is why contractor rates run above salaries.

Class 2 and payments on account

Class 2 needs no payment once profits reach the £7,105 Small Profits Threshold — it is treated as paid, protecting the State Pension record for £0. Below that, voluntary Class 2 at £3.65 a week keeps the record fully intact every year.

Then expect payments on account: when the Self Assessment bill passes £1,000, HMRC collects half of next year's bill in advance each January and July. On the £40,000 example the £7,131.80 bill triggers it, so January demands the £3,565.90 balancing payment plus the first £3,565.90 advance together — budget for the double-hit in year one.

Worked example: £40,000 profit

Taxable income is £40,000 − £12,570 = £27,430, all inside the basic band: Income Tax is 20% × £27,430 = £5,486. Class 4 is 6% × £27,430 = £1,645.80. Combined £7,131.80, leaving £32,868.20 — an effective rate of 17.8%. At £60,000 of profit the same arithmetic gives £11,432 of Income Tax plus £2,456.60 of Class 4 (£13,888.60 total, £46,111.40 kept, 23.1% effective). The rate climbs with profit because both charges are banded — which is exactly why higher earners ask whether a limited company keeps more, compared side by side in our UK contractor tax calculator.

Sources

Income Tax bands and Personal Allowance: GOV.UK. Class 2/Class 4 National Insurance: GOV.UK. Self-employment registration and records: GOV.UK. Modelled for trading profits up to £200,000; the £100,000 Personal Allowance taper is applied — see an accountant near the boundaries.

The £40,000 example on this page was recomputed by hand from 2026/27 GOV.UK rates, outside the calculator. How we check every page.

Related calculators

Compare this route against incorporation in the UK contractor tax calculator, read the full decision framework in the sole trader vs limited company guide, and benchmark the profit input against the UK freelance rates guide (£407 average day rate).

Frequently Asked Questions

How much tax does a sole trader pay on £40,000 profit?

£7,131.80: £5,486 of Income Tax (20% on £27,430 after the £12,570 allowance) plus £1,645.80 of Class 4 National Insurance (6% on the same base). Take-home is £32,868.20, and payments on account apply on top of the timing.

Do sole traders pay Class 2 National Insurance?

Not as a payment once profits reach £7,105 a year — Class 2 is treated as paid, protecting the State Pension record for £0. Below that threshold, voluntary Class 2 at £3.65 a week keeps the record intact.

What are payments on account?

When the Self Assessment bill passes £1,000, HMRC collects roughly half of next year's bill in advance each January and July. Budget for the January double-hit in year one: the balancing payment plus the first advance land together.

Should I be a sole trader or a limited company?

At 2026/27 rates there is no universal winner — run both structures in the UK contractor tax calculator, then weigh liability, admin, and IR35 alongside the tax. The full framework is in the sole trader vs limited company guide.

What if I am employed and self-employed at the same time?

Employment income uses up Personal Allowance and bands first, so freelance profit stacks on top at your highest marginal rates, and Class 4 applies to the self-employed slice in full. Run the combined position past an accountant before relying on single-status math.