Budget 2026 for sole traders and the self-employed

Budget 2026 has more for the self-employed than most recent Budgets. Small side businesses get a bigger tax-free allowance, the next wave of Making Tax Digital gets a softer first year, high-mileage drivers get more relief, and the way Self Assessment tax is paid will change from 2029. Income tax and National Insurance rates and thresholds are unchanged. Here is what each measure means for sole traders and the practices that act for them.

What changes and when

The trading allowance

From 6 April 2027 the first £3,000 of gross trading and miscellaneous income is tax-free, up from £1,000. People whose only extra income is a small trade under £3,000 will not need to report it. Above £3,000, the allowance can be deducted instead of actual expenses. HMRC estimates 400,000 people will pay around £380 less tax on average. See trading allowance triples to £3,000.

Making Tax Digital

Sole traders and landlords whose 2025-26 qualifying income is over £30,000 must use MTD for Income Tax from 6 April 2027. They will not get penalty points for late quarterly updates in 2027-28, but must still send the updates before filing their return. Those who started in April 2026 get no extension of their soft landing. See MTD for Income Tax after Budget 2026.

How tax is paid

From April 2029 the two large payments on account each January and July will be replaced by smaller, more regular payments during the tax year, collected automatically, for example by Direct Debit. People with enough PAYE income can choose to pay through their tax code instead. The amount of tax does not change. The government dropped a plan to force collection through PAYE after 3,630 consultation responses, many from self-employed people worried about irregular income. See payments on account reform.

Expenses and allowances

• Mileage. Self-employed people using simplified expenses can deduct 55p a mile for the first 10,000 business miles, and 35p above that from 6 April 2027. See mileage rates.
• Capital allowances. The £1 million Annual Investment Allowance still covers most equipment purchases. The main rate writing down allowance falls to 12% from 6 April 2027, which slows relief on cars and existing pool balances. See capital allowances.

National Insurance and income tax

For 2027-28, Class 4 National Insurance stays at 6% on profits between £12,570 and £50,270 and 2% above. The small profits threshold rises to £7,355, and voluntary Class 2 contributions are £3.80 a week. The personal allowance stays at £12,570. See our guide to National Insurance for the self-employed.

VAT and selling online

• Online marketplaces. From October 2027, marketplaces will collect VAT on sales by UK sellers who are VAT-registered or sell over £90,000 a year on one platform. See online marketplaces and VAT.
• Overseas services. From 1 April 2027, sole traders who are not VAT-registered may be charged UK VAT by overseas suppliers of services such as software, instead of the reverse charge applying. See VAT changes in Budget 2026.
• E-invoicing. VAT-registered sole traders must issue and receive VAT invoices as e-invoices from 1 April 2029. See VAT e-invoicing.

Family support

The Budget document confirms that from April 2029 eligible self-employed fathers, partners and adopters in Great Britain will be able to get parental pay through a new parental allowance, as will people who miss out on statutory paternity or adoption pay because of irregular work patterns. The government expects over 150,000 parents a year to benefit.

Savings and rental income

Self-employed people with savings or rental income should note that, from 6 April 2027, savings and property income are taxed at 24%, 44% and 49%. See savings and property income tax.

What practices should do

1. Identify clients with 2025-26 qualifying income over £30,000 and get them signed up for MTD before April 2027.
2. Check which low-income side traders can stop filing from 2027-28, after their 2026-27 return.
3. Rerun the simplified expenses comparison for high-mileage clients.
4. Start talking to clients about budgeting for regular tax payments from 2029.
5. Check that online sellers’ VAT registration position is right before October 2027.

Our guides to sole trader tax, sole trader expenses and MTD for sole traders explain the current rules.

Frequently asked questions

Do self-employed people pay more tax after Budget 2026?

Not on trading profits. Income tax and National Insurance rates and thresholds are unchanged, and the trading allowance rises. Savings and rental income will be taxed more from April 2027.

When does Making Tax Digital start for sole traders earning over £30,000?

From 6 April 2027, based on 2025-26 qualifying income. Budget 2026 means there are no penalty points for late quarterly updates in 2027-28 for this group.

Will I still make payments on account in January and July?

Until April 2029. After that, payments on account are replaced by smaller, regular payments during the tax year, usually by Direct Debit, with 2029-30 as a transition year.

Can self-employed fathers get paternity pay?

From April 2029 a new parental allowance will be available to eligible self-employed fathers, partners and adopters in Great Britain.