Self-Employed Tax and Class 4 NI: A 2026/27 Guide

Sole traders pay the same income tax as employees but a different National Insurance, file it themselves through Self Assessment, and pay it on a schedule that catches almost everyone out in their first full year. This guide covers what you owe on 2026/27 profits, when it is due, and the reliefs that change the number.

Everything here applies to sole traders and partners. A limited company works completely differently — see the limited company calculator.

What you are taxed on

Not your turnover — your profit. That is your trading income minus allowable business expenses, and it is the figure everything else is worked out from. Getting expenses right is therefore not administrative tidiness; it directly changes the tax.

Income tax on profit

Identical rates and allowances to an employee. For England, Wales and Northern Ireland in 2026/27: nothing on the first £12,570, 20% on the next £37,700, 40% up to £125,140, and 45% above. Scottish rates apply if you are a Scottish taxpayer.

On £50,000 of profit: £50,000 − £12,570 = £37,430 taxable, all within the basic rate band, giving £7,486 of income tax.

Class 4 National Insurance

This is where self-employment differs. Class 4 is charged at:

• 6% on profits between £12,570 and £50,270
• 2% on profits above £50,270

The thresholds match employee National Insurance exactly, but the main rate is 6% rather than 8%. On £50,000 of profit that is £37,430 × 6% = £2,245.80, against £2,994.40 for an employee on the same figure — a saving of £748.60. There is also no employer contribution, which on a £50,000 salary would cost an employer a further £6,750.

That comparison is real but incomplete. An employee gets holiday pay, sick pay, an employer pension contribution and redundancy rights. A sole trader funds all of those personally, and the National Insurance saving rarely covers them.

What you actually keep

• £20,000 profit → £1,486 tax + £445.80 Class 4 = £18,068.20 left
• £30,000 profit → £3,486 tax + £1,045.80 Class 4 = £25,468.20 left
• £50,000 profit → £7,486 tax + £2,245.80 Class 4 = £40,268.20 left
• £70,000 profit → £15,432 tax + £2,656.60 Class 4 = £51,911.40 left

The jump between £50,000 and £70,000 is worth noting: profit rises 40% but the tax and National Insurance bill nearly doubles, because that band crosses into 40% income tax while Class 4 drops to 2%.

Class 2: almost certainly nothing

Class 2 used to be a flat weekly charge. Since April 2024 it has effectively gone. If your profits are at or above the small profits threshold of £7,105, Class 2 is treated as paid without you handing over anything — your National Insurance record is credited as though you had paid it, so the qualifying year still counts towards your State Pension.

Below that threshold it becomes voluntary at £3.65 a week, about £190 a year. For someone with a low-profit year, paying it voluntarily to protect a qualifying year is often the best-value decision available in the entire tax system — 35 qualifying years earn the full State Pension of £241.30 a week.

The trading allowance

The first £1,000 of trading income each year is tax-free. If that is all you earn from self-employment you do not need to register or file at all.

Above £1,000 you choose: deduct your actual expenses, or deduct the £1,000 allowance instead. You cannot do both. For someone with £5,000 of income and £400 of costs, claiming the allowance is worth £600 more than claiming the expenses — so it is worth checking rather than defaulting to receipts.

Allowable expenses

The test is that a cost must be wholly and exclusively for the business. Common allowable costs include:

• Stock, raw materials and direct costs of what you sell
• Office costs, software subscriptions, professional insurance and phone bills
• Travel for work — but not commuting to a regular workplace
• The business proportion of using your home, or HMRC's simplified flat rate by hours worked
• Accountancy and professional fees, bank charges and business-related interest
• Training that maintains existing skills, though not training that creates new ones

Equipment such as a laptop or tools is normally handled through capital allowances rather than as an ordinary expense, though the annual investment allowance means most small purchases are fully deductible in the year you buy them. Anything with genuine private use — a car, a phone — must be apportioned honestly.

Payments on account: the first-year shock

This is what surprises people. If your Self Assessment bill exceeds £1,000 and less than 80% of your tax is collected at source, HMRC asks you to pay towards next year at the same time as settling this one.

The schedule for a £50,000-profit sole trader with a £9,731.80 bill for 2026/27:

• 31 January 2028 — the £9,731.80 balancing payment, plus a first payment on account of £4,865.90 towards 2027/28. Total due: £14,597.70.
• 31 July 2028 — a second payment on account of £4,865.90.

Each payment on account is half of the previous year's bill. In your first profitable year you therefore pay roughly 150% of your liability in one January, which is why the standard advice is to set aside a fixed share of every payment received rather than budgeting from the bill. Note that payments on account cover income tax and Class 4 National Insurance, but not any Class 2.

If your profits fall, you can apply to reduce your payments on account — but if you reduce them too far HMRC charges interest on the shortfall.

Deadlines and Making Tax Digital

• 5 October following the end of the tax year you started — register for Self Assessment.
• 31 October — paper return deadline.
• 31 January — online return, plus the balancing payment and first payment on account.

One change matters for 2026/27 specifically. Making Tax Digital for Income Tax began in April 2026 for sole traders and landlords with qualifying income above £50,000, requiring digital records and quarterly updates to HMRC rather than a single annual return. The threshold falls to £30,000 in April 2027 and £20,000 in April 2028. If your profit is near £50,000, it is worth checking where you stand now rather than in January.

Work out your own figure

Our self-employed tax calculator takes your profit and shows the income tax, Class 4 National Insurance and what is left, with a side-by-side comparison against an employee on the same figure. For the National Insurance background, see National Insurance Explained.