1. Start with taxable profit
Your turnover is the money your business receives before costs. Your taxable profit is broadly the amount left after allowable business expenses and relevant tax adjustments. That distinction matters because Income Tax and Class 4 National Insurance are based on profit, not simply on sales.
If you use something for both business and personal reasons, only the business part is normally deductible. Personal drawings are not a business expense.
2. Income Tax for the self-employed
The standard Personal Allowance for 2026/27 is £12,570, although it can be reduced when adjusted net income exceeds £100,000. For England, Wales and Northern Ireland, the main rates on non-savings income are 20%, 40% and 45%. Scottish non-savings income uses different rates and bands.
| England, Wales and Northern Ireland | 2026/27 |
|---|---|
| Personal Allowance | Up to £12,570, subject to eligibility |
| Basic rate | 20% from £12,571 to £50,270 |
| Higher rate | 40% from £50,271 to £125,140 |
| Additional rate | 45% above £125,140 |
3. National Insurance for 2026/27
Class 4
Class 4 National Insurance is normally 6% on profits above £12,570 up to £50,270, then 2% above £50,270.
Class 2
If profits are at least £7,105, Class 2 is generally treated as paid. If profits are lower, you may be able to pay voluntary Class 2 at £3.65 a week to protect your National Insurance record.
Most people pay the National Insurance due on self-employed profits through Self Assessment.
4. Self Assessment registration and deadlines
If gross trading income is more than £1,000 for the tax year, you generally need to check whether you must register for Self Assessment. If you need to file and are not already registered, the normal registration deadline is 5 October following the end of the tax year.
For the 2025/26 tax year, paper returns are normally due by 31 October 2026. Online returns and the balancing payment are normally due by 31 January 2027. Different deadlines can apply in some circumstances, including late registration.
Experlu offers a fixed-price Self Assessment service for straightforward returns.
5. Making Tax Digital for Income Tax
Making Tax Digital for Income Tax started on 6 April 2026 for people within scope whose 2024/25 qualifying income from self-employment and property was over £50,000. Qualifying income is broadly gross self-employment and property income before expenses.
The rollout continues in stages. The threshold is more than £30,000 from April 2027 and more than £20,000 from April 2028, based on the relevant earlier tax return. People within MTD need compatible software, digital records and quarterly updates.
6. What if you are employed as well?
You can be employed and self-employed in the same tax year. Your employer can deduct PAYE and Class 1 National Insurance from your salary while Class 4 National Insurance may also be due on self-employed profits.
HMRC may need to adjust the National Insurance position after your Self Assessment return is filed. Employment income itself does not count towards MTD qualifying income.
7. Should you use a limited company instead?
A limited company is not the same as being self-employed as a sole trader. The company is a separate legal entity and has Corporation Tax, accounting and Companies House obligations. Whether it is suitable depends on more than the headline tax rate.
Consider liability, how you plan to take money out, employer National Insurance, pension contributions, administration, investment plans and whether you want to build a business that is separate from you.
Compare employed and self-employed take-home pay →Frequently asked questions
Do self-employed people pay Income Tax on turnover?
No. Income Tax is normally based on taxable profit, which is business income after allowable deductions and other tax adjustments. Turnover is your gross business income before expenses.
Do I still pay Class 2 National Insurance?
For 2026/27, if profits are at least £7,105, Class 2 is generally treated as paid to protect your National Insurance record. If profits are below that level you may be able to pay voluntary Class 2 at £3.65 a week.
What are the Class 4 National Insurance rates for 2026/27?
Class 4 is normally 6% on profits over £12,570 up to £50,270 and 2% on profits above £50,270.
Can I use the £1,000 trading allowance and claim expenses too?
Not against the same trading income. If you use the trading allowance, you cannot also deduct actual business expenses from that income.
Can I be employed and self-employed at the same time?
Yes. Class 1 National Insurance can apply to your employment and Class 4 can apply to self-employed profits. You may need Self Assessment for the self-employed income.
Does Making Tax Digital apply to every sole trader?
No. It is being introduced by qualifying income. From 6 April 2026 it applies to people within scope whose 2024/25 qualifying income was over £50,000, unless an exemption applies.
A vetted UK accountant can prepare and file a straightforward return for a fixed price.
This guide is general information, not personal tax advice. Tax treatment depends on your facts and can change.