This calculator works out what a UK sole trader actually keeps from a year of trading after income tax, Class 4 National Insurance and the trading allowance or actual expenses are applied. It uses 2026/27 HMRC rates: £12,570 personal allowance, 20% basic rate, 40% higher rate and 45% additional rate for income tax; 6% Class 4 NI between £12,570 and £50,270 then 2% above; and the £1,000 trading allowance as an alternative to itemised expenses. Enter your turnover and your business expenses and the calculator returns your monthly and annual take-home, your annual tax bill and what to set aside each month for next January.
How sole trader take-home is calculated
The calculation runs in this order:
- Trading profit = Turnover − Allowable expenses (or Turnover − £1,000 trading allowance if higher net result)
- Pension contributions are deducted from profit (technically extending the basic-rate band, but mathematically equivalent for most calculations)
- Income tax is calculated on profit at 20%/40%/45% bands after the £12,570 personal allowance
- Class 4 NI is calculated on profit at 6%/2% bands after the £12,570 threshold
- Take-home = Profit − Income tax − Class 4 NI
Note that trading profit isn’t the same as cash in your account. You may have invested in equipment that gets capital allowances rather than full deduction, drawn money from the business for living expenses (which doesn’t reduce taxable profit), or held money in the business for working capital. Take-home in this calculator means “what your tax bill leaves you with from the year’s profit”, not “what’s in your bank account at year-end”.
Worked example: £55,000 turnover, £8,000 expenses
A graphic designer with £55,000 of turnover and £8,000 of allowable expenses (software subscriptions, professional indemnity insurance, accountancy fees, mileage, home-office contribution) in 2026/27.
- Trading profit: £55,000 − £8,000 = £47,000
- Income tax: (£47,000 − £12,570) Ã, 20% = £6,886 (all in basic-rate band)
- Class 4 NI: (£47,000 − £12,570) Ã, 6% = £2,066
- Total tax bill: £8,952
- Take-home: £47,000 − £8,952 = £38,048
Annual take-home: £38,048 — about £3,170 a month after tax. Set aside roughly £750 a month for tax (the January Self Assessment bill plus payments on account).
The £1,000 trading allowance
If your turnover is £1,000 or less, you don’t have to register for Self Assessment or declare the income. If it’s more, you can choose for each tax year:
- Deduct actual expenses in the normal way.
- Claim the £1,000 trading allowance as a flat deduction.
The trading allowance is most useful when actual expenses are below £1,000 — typical for very simple service businesses with minimal overhead. A sole trader with £8,000 turnover and £200 of actual expenses gets a better result claiming the £1,000 allowance (taxable profit £7,000) than itemising (taxable profit £7,800).
You can’t combine the trading allowance with itemised expenses. If you claim the allowance, you can’t also deduct actual expenses. For most sole traders with mortgaged premises, vehicles or significant inventory, actual expenses far exceed £1,000 and the trading allowance is irrelevant.
Allowable expenses: the full picture
Common categories of allowable expense for a sole trader:
- Office costs: rent, utilities, broadband (business proportion if home-based), printing, postage.
- Travel: business mileage at 45p/25p, train and bus fares for business journeys, hotel and meals on business trips.
- Stock and materials: cost of goods sold.
- Professional fees: accountancy, legal, professional subscriptions (HMRC-approved bodies).
- Bank charges and interest: on business accounts and business loans.
- Insurance: professional indemnity, public liability, business equipment.
- Marketing and advertising: website hosting, ad spend, business cards, networking events.
- Equipment: computers, phones, tools (often via Annual Investment Allowance for full first-year deduction).
- Salary and pension: if you employ anyone (including spouse, if doing genuine work).
- Use of home as office: simplified flat rate per HMRC bands or actual proportion of bills.
Personal expenses, entertainment of clients (mostly disallowed), and capital costs of buying premises don’t qualify.
Saving for tax
The biggest cash flow hazard for new sole traders is failing to set aside enough for the January tax bill. A general rule of thumb:
- £20,000 profit: set aside about 12% of revenue (£2,400)
- £50,000 profit: set aside about 24% of revenue (£12,000)
- £80,000 profit: set aside about 30% of revenue (£24,000)
- £150,000 profit: set aside about 38% of revenue (£57,000)
These rough percentages cover income tax + Class 4 NI on a profit equal to revenue (i.e. no expenses). Adjust for your actual expense ratio. The calculator on this page shows the exact percentage to set aside for your specific revenue and expense profile.
A separate “tax bucket” account funded each month is the simplest approach — even a basic notice account paying minimal interest beats spending the money and having to find it in January. Some sole traders use accounting software that automatically reserves a percentage of each invoice paid into a tax bucket.
Year one cash flow shock
The first January Self Assessment bill is harsher than people expect because of payments on account. A sole trader’s first full tax year typically produces:
- Year-one tax (paid 31 January after the tax year ends)
- Plus first payment on account towards year-two (also 31 January)
- Plus second payment on account towards year-two (31 July)
So in the first January after starting full self-employment, you pay roughly 1.5 years of tax in one cheque. The calculator on this page shows the year-two timing alongside the regular calculation.
Key takeaways
- Sole trader take-home = trading profit minus income tax minus Class 4 NI.
- For 2026/27: £12,570 personal allowance, 20% basic rate, 6% Class 4 NI in the main band.
- Sole traders should set aside roughly 25-30% of profit for the January tax bill, more for higher-rate earners.
- Year one of self-employment has a heavier January cheque due to payments on account towards year two.
- The £1,000 trading allowance is an alternative to itemised expenses, useful only when actual expenses are very low.
Frequently asked questions
Is sole trader take-home better or worse than limited company take-home? At low profit levels (under about £30,000), sole trader is usually simpler and roughly equivalent. Above £30,000-£40,000 profit, a limited company starts to become more efficient because dividends are taxed less than salary on the personal side and corporation tax replaces income tax on retained profits. Above £80,000, the gap widens. The right structure depends on your specific circumstances — running both Self-Employed Take-Home and Salary vs Dividends gives you a side-by-side view.
Can I deduct my home office? Yes, on a proportionate basis. HMRC accepts either a simplified flat rate (£10/month if you work 25-50 hours a month from home, £18 for 51-100, £26 for 101+) or the actual proportion method (calculate the percentage of household bills relating to business use, based on number of rooms and time spent).
Do I need to register for VAT? Only if your turnover exceeds £90,000 in any 12-month rolling period (the VAT registration threshold for 2026/27, frozen at £90,000 since April 2024). Below the threshold, VAT registration is voluntary — sometimes useful for B2B businesses where customers can reclaim, less useful for B2C where the VAT becomes an effective price increase.
What about Class 2 NI? Class 2 is no longer compulsory if your profit is above £7,105 — you get an automatic state pension credit without payment. Below £7,105 you can volunteer £3.65 a week to protect the qualifying year. See Self-Employed NI for the details.