Working out profit
Profit is turnover minus allowable expenses. Allowable means incurred wholly and exclusively for the business. Simplified expenses and flat rates are available for things like use of home and vehicle mileage.
Example
Maya, a graphic designer in Bristol, invoices £48,000 and has £6,000 of expenses. Her profit of £42,000 means £5,886 Income Tax and £1,765.80 Class 4 NI: a total of £7,651.80, or about 18% of profit.
Payments on account
After your first year, HMRC usually asks for two payments towards next year's bill, on 31 January and 31 July. It catches many new sole traders out.
VAT for sole traders
VAT is separate from Income Tax. You must register once your taxable turnover passes £90,000 in a rolling 12 months, and you can register voluntarily below that. Once registered you charge VAT on sales and can reclaim it on business costs.
Many sole traders with low costs use the Flat Rate Scheme, which means paying a fixed percentage of turnover instead of working out VAT on each purchase. Use our VAT calculator to add or remove VAT, check the threshold and compare the two methods.
Making Tax Digital
From April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send quarterly updates. The threshold falls to £30,000 from April 2027.
Turnover, profit and available cash
Keep these three figures separate. Business expenses and a tax reserve can leave much less available to spend than the amount invoiced, even when the business is profitable.
Try it with your own numbers
Estimate Income Tax and Class 4 National Insurance on self-employed profits for 2026/27, including other employment income.
Frequently asked questions
When do I need to register as self-employed?
By 5 October after the end of the tax year in which you started, if your trading income is over £1,000.
Check it on GOV.UK: Income Tax rates and allowances (opens GOV.UK in a new tab) · Self-employed National Insurance rates (opens GOV.UK in a new tab)
Sources
Tax year 2026/27. Check these official sources for current rules and deadlines.
Related calculators
- Self Employed Tax Calculator — Estimate Income Tax and Class 4 National Insurance on self-employed profits for 2026/27, including other employment income.
- VAT Calculator — Add or remove UK VAT at 20%, 5% or 0%, check your turnover against the £90,000 registration threshold, and compare the Flat Rate Scheme with standard VAT accounting.
Related guides
- UK Tax Year Planner 2026/27: Deadlines, Tax Codes and Allowances — Every key date in the 2026/27 UK tax year: Self Assessment deadlines, payments on account, when tax codes change, and when to use or claim your allowances.
- Self Assessment Explained — Who needs to file a Self Assessment tax return, what goes on it, the deadlines for 2026/27 and the penalties for missing them.
- Tax on Side Hustle Income — When side hustle income becomes taxable, the £1,000 trading allowance, and how platform reporting rules work.
- VAT Explained: Rates, Registration and the Flat Rate Scheme — A plain-English guide to UK VAT: the three rates, when you must register, how to add and remove VAT, and whether the Flat Rate Scheme suits you.
- National Insurance Rates 2026/27 — Current UK National Insurance rates and thresholds for employees, employers and the self-employed, with category letters explained.