How much should I set aside for tax as a self-employed tradesperson?

For 2026-27 outside Scotland, putting aside 20% of your profit, not your takings, covers Income Tax and Class 4 National Insurance up to £50,270 profit. Your first tax bill can need about 30%, because of payments on account.

As a sole trader nobody takes tax off your pay, so the money for your bill has to come out of each payment you receive. The figures below follow GOV.UK as checked on 17 October 2026, for England, Wales and Northern Ireland.

What you pay tax on in 2026-27

Two charges come out of your profit, which is what you take in minus allowable business costs:

So every pound of profit between £12,570 and £50,270 costs 26p, and every pound above £50,270 costs 42p. The Personal Allowance also shrinks by £1 for every £2 of income over £100,000.

Class 2 National Insurance no longer has to be paid. If your profits are £7,105 or more, it is treated as paid to protect your National Insurance record. Below that you can choose to pay it voluntarily at £3.65 a week.

If you live in Scotland, Income Tax has six bands, from 19% to 48%, so the Income Tax figures here do not apply to you.

A rule of thumb by profit

These are the 2026-27 totals for Income Tax and Class 4, for someone with no other income, outside Scotland.

In our reading, a simple round-up works: 15% of profit up to £29,500, 20% up to £50,270, 25% up to £66,000 and 30% up to £94,000. Above that it climbs further, because the Personal Allowance shrinks once income passes £100,000. If you have a job or other income too, more of your profit falls in the higher bands, so save more.

Payments on account: the first-year jump

Payments on account are two advance payments towards next year's bill, each usually half of last year's tax, due by 31 January and 31 July. They include Class 4 National Insurance. You do not have to make them if last year's bill was under £1,000, or more than 80% of your tax was paid outside Self Assessment.

The first time they apply, 31 January brings the whole year's tax plus the first payment on account towards the next year. That is about 150% of a year's tax at once.

A worked example

A plasterer in England starts as a sole trader on 6 April 2026. In 2026-27 they take £56,000 and spend £14,000 on materials, a van and other costs, so their profit is £42,000. They have no other income and no CIS deductions.

The 2026-27 tax is 18.2% of profit, but the January bill is 27.3%. Setting aside 30% of profit, £12,600, covers it. On a £1,000 job where £250 goes on materials, that means putting £225 in the tax pot. This is an example only. Your own figures will differ.

CIS subcontractors and VAT

If you work under the Construction Industry Scheme (CIS), your contractor takes 20% off the labour part of your pay if you are registered. Those deductions are advance payments towards your tax and National Insurance, and they come off your bill. Check what has been taken so far against the rule of thumb for your profit, and save only the gap. Before you join Making Tax Digital, over-deducted CIS is claimed back through your Self Assessment tax return. Once you are in Making Tax Digital, HMRC adds your CIS deductions to your tax return, and any refund is requested separately through HMRC online services. Either way, the sooner after 5 April the return is filed, the sooner HMRC can repay you. Our guides on how much tax a CIS subcontractor pays and claiming a CIS refund go further.

If you are VAT-registered, the VAT you charge is not yours. It goes to HMRC on your VAT return, usually every 3 months, due one month and 7 days after the period ends. Keep it in its own pot, separate from your Income Tax money, and work the percentages above out on your figures without VAT.

What this means for you

Treat part of every payment as HMRC's from the day it lands. A separate savings account for tax, topped up each time a customer pays, means the January bill is already sitting there. In your first year, save for the year's tax plus half again.

Making Tax Digital (MTD) does not change this. Its quarterly updates are reports to HMRC, not payments, and tax is still paid on 31 January and 31 July. The estimate your software shows after each update is a useful check on your pot.

Steps to set money aside

1. Open a separate savings account just for tax.
2. Work out your rough profit margin: what is left of each £1 you take after materials and costs.
3. Pick your percentage of profit from the table above, adding half again for your first payments on account year.
4. Each time a payment lands, move that share of its profit part into the tax pot.
5. If you are VAT-registered, move the VAT into a second pot as well.
6. If you are under CIS, compare your deductions to date with what you need, and save the difference.
7. Check the pot against your estimate every few months and top it up if profit has gone up.

The free MTD check shows when Making Tax Digital starts for you, and the trades section has more guides.