Self-employed tax: from business profit to your tax bill

Turnover is business income before expenses. Profit is what remains after the costs and adjustments allowed for tax. Drawings are money you take for yourself: they do not reduce taxable profit.

For example, £60,000 of receipts less £10,000 eligible costs gives £50,000 profit. Drawing only £30,000 does not make the other £20,000 tax-free. Conversely, transferring money between your own accounts is not automatically another sale.

A limited company is different: company profit and your salary or dividends have separate tax treatment. Do not put company turnover into a sole-trader calculator.

The 2026/27 tax year runs from 6 April 2026 to 5 April 2027. Cash basis is the standard method for eligible sole traders: record income when received and expenses when paid. Under traditional accounting, invoice dates and accounting adjustments matter.

Accounts ending on another date can need apportionment to the tax year. Transition profits and losses can also need separate treatment. Start with the tax-year profit prepared from your records rather than treating any convenient 12 months of bank deposits as the answer.

Income Tax combines taxable profit with your other taxable income. The standard Personal Allowance is £12,570, reduced above £100,000 adjusted net income. Scottish rates apply to Scottish non-savings income; National Insurance follows UK rules.

For 2026/27, standard Class 4 NI is 6% on profit above £12,570 up to £50,270, then 2% above £50,270. Class 2 is normally treated as paid when profit reaches £7,105; below that, voluntary contributions may be available at £3.65 a week. Check the NI record before assuming you have a complete qualifying year.

A job alongside the business can change Income Tax and the Class 1/Class 4 maximum. Student loans use their own annual income calculation. A personal pension is not automatically a business expense that reduces every tax.

Assume England, no other income, standard allowance, under State Pension age, and no loans, pension or other reliefs. Income Tax is (£50,000 − £12,570) × 20% = £7,486. Class 4 is £37,430 × 6% = £2,245.80.

The combined annual tax and Class 4 cost is £9,731.80, leaving £40,268.20 of the profit before personal spending. This is an annual planning example; it does not say that £9,731.80 is the next amount due. Prior payments and payments on account change the cash schedule.

Use your own profit, other income, deductions and tax already paid. Divide a realistic remaining reserve across the dates before payment is due. Revisit the estimate as actual profit changes. A fixed percentage of turnover can be misleading where business costs vary.

Keep records for receipts, invoices, expense evidence, accounting adjustments, pension and Gift Aid statements, PAYE/CIS deductions, loan deductions and payments on account. A tax reserve is committed money, not spare cash. Use a separate pot if that helps you avoid spending it twice.

Registration, filing and payment have different deadlines. Check HMRC’s current-year instructions, including the usual 5 October notification and 31 January online-return/payment cycle. If you cannot pay, contact HMRC early rather than leaving the return unfiled.

Making Tax Digital uses qualifying self-employment/property income, not simply taxable profit. Income over £50,000 in 2024/25 brings the April 2026 start; over £30,000 in 2025/26 points to April 2027; over £20,000 in 2026/27 points to April 2028, subject to the rules and exemptions. Use the official eligibility checker. Our free estimate does not submit digital updates.