On £42,000 of profit in 2026/27 the bill is £7,651.80, so putting aside 18.22% of your profit, or £637.65 a month, covers it.
A sole trader in England with £42,000 of profit for 2026/27
| Profit | £42,000.00 |
| Taxable income (£42,000 less £12,570) | £29,430.00 |
| Income tax: £29,430 at 20% | £5,886.00 |
| Class 4 National Insurance: £29,430 at 6% | £1,765.80 |
| Tax and National Insurance for 2026/27 | £7,651.80 |
£7,651.80 is 18.22% of £42,000. Spread over twelve months it is £637.65 a month.
England, and £42,000 is profit after allowable business expenses. All assumptions and rates
Where £42,000 of profit ends up
Assumptions and rates
- England, and £42,000 is profit after allowable business expenses.
- No other income, no pension contributions and no student loan.
- This is not the first year of trading, so there is no extra payment on account to fund yet.
- Personal allowance £12,570
- Income tax 20% on the first £37,700 of taxable income
- Class 4 National Insurance 6% on profit between £12,570 and £50,270
Why not just put aside 20%?
At £42,000 of profit, 20% would be £8,400, which is £748.20 more than the bill. That is a comfortable margin. The trouble is that a flat 20% stops working as profit grows, because every pound above £50,270 is taxed at 40% plus 2% National Insurance.
At £60,000 of profit the bill is £13,888.60, which is 23.15% of profit. Putting aside 20% would leave you £1,888.60 short on 31 January.
How is the £60,000 figure worked out?
Taxable income is £60,000 less the £12,570 personal allowance, which is £47,430. The first £37,700 is taxed at 20% (£7,540.00) and the remaining £9,730 at 40% (£3,892.00), so income tax is £11,432.00.
Class 4 National Insurance is 6% on the £37,700 between £12,570 and £50,270 (£2,262.00) and 2% on the £9,730 above it (£194.60), so £2,456.60. Together that is £13,888.60.
Why will my first January be bigger than this?
In your first year with a bill over £1,000, HMRC asks for this year's tax and half of next year's on the same day. For the £42,000 example, the first January payment is £11,477.70, which is £3,825.90 more than the bill itself. Why is my first January tax bill so big? shows the working.
If you are in your first year, put aside 150% of the monthly figure until that January has passed. For this example that is £956.48 a month.
Do I have to pay Class 2 National Insurance?
No. Class 2 is voluntary. If your profit is £7,105 or more you are treated as having paid it, so your State Pension record is protected without a payment. Below that, you can choose to pay £3.65 a week (£189.80 a year) to keep the year counting.
Where should the money go?
Somewhere you will not spend it by accident. Many sole traders move the set-aside amount into a separate savings account each time a customer pays, so the tax money never sits in the account they use day to day.
Moving money each time you are paid also copes with uneven income. In a quiet month you move less, and in a busy one you move more, and the percentage stays the same.
What if my profit changes during the year?
Re-run the working with your new estimate. The percentage creeps up as profit grows, then rises faster above £50,270, and faster again above £100,000, where the personal allowance starts to shrink.
What this doesn’t cover
- Scottish income tax rates, which apply to self-employed profit in Scotland.
- Student loan repayments, which are collected through Self Assessment on top of this.
- Other income such as a salary, rent or dividends, which uses up bands first.
- Profit over £100,000, where the personal allowance is reduced.
- VAT, which is a separate tax on sales once you are registered.
Common questions
For most profits up to about £60,000 in 2026/27 it is more than enough, outside your first year. Working out your own figure is better, because 25% can tie up money you do not need to hold.
In this working, yes. The £7,651.80 is income tax of £5,886.00 and Class 4 National Insurance of £1,765.80.
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