The short version
- Tax is charged on profit, so start with turnover minus allowable costs.
- In 2026/27 at £35,000 profit, Income Tax and Class 4 NI come to about 17% of profit (England, Wales and NI).
- CIS at 20% often covers most or all of a subbie's bill; save only the gap.
- Your first year can mean paying 1.5 times the bill in one January, because of payments on account.
- A separate savings account, topped up every time you're paid, is the simplest system.
Start with your profit
Income Tax and National Insurance aren't charged on what you invoice. They're charged on your profit: turnover minus the materials you buy and your other allowable expenses.
So the first step is a decent estimate of your profit for the tax year (6 April to 5 April). Last year's figure, adjusted for any big change, is a good starting point.
What you pay in 2026/27
For England, Wales and Northern Ireland:
| Profit band | Income Tax | Class 4 NI |
|---|---|---|
| Up to £12,570 | 0% | 0% |
| £12,570 to £50,270 | 20% | 6% |
| £50,270 to £125,140 | 40% | 2% |
| Over £125,140 | 45% | 2% |
The £12,570 Personal Allowance shrinks by £1 for every £2 of income over £100,000. Scotland has six Income Tax bands, from 19% to 48%; Class 4 NI is the same everywhere. Class 2 NI is no longer charged, though people with profits under £7,105 may choose to pay it voluntarily (£3.65 a week in 2026/27) to protect their State Pension.
Real percentages at different profits
Here's the Income Tax and Class 4 NI at three profit levels, England, Wales and NI, 2026/27, with no other income:
| Profit | Income Tax | Class 4 NI | Total | Share of profit |
|---|---|---|---|---|
| £20,000 | £1,486.00 | £445.80 | £1,931.80 | 9.7% |
| £35,000 | £4,486.00 | £1,345.80 | £5,831.80 | 16.7% |
| £60,000 | £11,432.00 | £2,456.60 | £13,888.60 | 23.1% |
Look at the £60,000 row: the tax on the last £9,730 (above £50,270) is 40% plus 2%, so the overall share jumps. If you're near the higher-rate threshold, save more on each extra pound you earn.
Turning it into a saving habit
Once you know your yearly bill, divide it up:
- By month or week — set up a standing order into a separate account.
- As a percentage of each payment — move that share every time a customer pays you.
The percentage method copes better with up-and-down income.
Worked example
Mo is a self-employed tiler in England, not in CIS. He invoices about £3,750 a month, spends £250 a month on materials and £300 a month on other costs.
- Yearly turnover: £3,750 × 12 = £45,000
- Profit: £45,000 − £3,000 materials − £3,600 costs = £38,400
- Income Tax: (£38,400 − £12,570) × 20% = £5,166.00
- Class 4 NI: (£38,400 − £12,570) × 6% = £1,549.80
- Yearly bill: £6,715.80
That's £559.65 a month, or 14.9% of every invoice. Mo sets up a rule to move 15% of each payment into a savings pot.
Enter your own invoicing and costs, weekly or monthly, and get a set-aside figure per payment.
If you're in CIS
If Mo were a registered CIS subcontractor, the contractor would take 20% of his labour (£45,000 − £3,000 materials = £42,000), which is £8,400 for the year. His bill is £6,715.80, so CIS more than covers it and he'd expect about £1,684.20 back. He wouldn't need to put anything aside, and could check his CIS refund after the year ends.
That's common for subbies with modest profits. But CIS doesn't always cover everything. It's more likely to fall short if:
- you have few costs (high profit compared with labour);
- you earn over £50,270 profit, where 40% tax starts;
- you have other income, like rent or a PAYE job;
- you have a student loan;
- some of your work isn't under CIS, such as jobs for homeowners.
The first-year trap
If you've just started out, budget for more than one year's tax in your first January.
When you file your first return, HMRC usually asks for the whole bill plus a first payment on account towards the next year, which is half the bill again. You don't have to pay payments on account if the bill is under £1,000, or if more than 80% of it was already taken at source (through CIS or PAYE).
For Mo, the first January would be his £6,715.80 bill plus £3,357.90 on account: £10,073.70 by 31 January 2028, followed by another £3,357.90 by 31 July 2028. If he'd only saved £6,715.80, he'd be short.
Save for the first year and a half In your first year of trading, aim to save about 1.5 times your expected bill by the January after the tax year ends. After that, steady saving at your normal rate keeps you level, because each year's payments on account are roughly the next year's bill.
Other things to save for
- Student loan repayments. Collected through Self Assessment at 9% of income over your plan's threshold (6% for postgraduate loans). Not included in the tables above.
- VAT, if you're registered. The VAT you charge isn't yours; keep it separately.
- Your pension. Paying into a personal pension also gets tax relief, which can lower your bill.
Where to keep it
Keep your tax money away from your everyday account so it doesn't get spent. An easy-access savings account or a separate "pot" in a business account works well. Any interest it earns counts as savings income, which may be taxable once it's over your Personal Savings Allowance.
When January comes, you pay HMRC from the pot, and anything left over stays as a buffer for next year.
Questions people ask
What percentage should I save for tax as a sole trader?
Work it out from your expected profit. In 2026/27 in England, Wales and Northern Ireland, Income Tax and Class 4 NI are about 10% of a £20,000 profit, 17% of £35,000 and 23% of £60,000. As a share of turnover it will be lower, because costs come off first.
Is 25% enough to save for tax?
For most sole traders with profits under £50,270, 25% of profit is more than enough for Income Tax and Class 4 NI. Above that, the 40% higher rate starts, and 25% may not be enough. Remember student loan repayments and payments on account if they apply to you.
Do I need to save for tax if CIS is taken off?
Often only a little. CIS at 20% of your labour is frequently more than your tax bill once your costs and Personal Allowance are taken into account. If you earn more or have few costs, there may be a gap to save for.
Where should I keep my tax money?
Somewhere separate from your everyday spending, ideally an easy-access savings account or a separate space in a business account. Any interest you earn on it counts as savings income, which may be taxable above your Personal Savings Allowance.
What happens if I can't pay my tax bill?
Contact HMRC before the deadline. You may be able to set up a Time to Pay arrangement to spread the cost. Interest is charged on late payments, and late payment penalties apply after 30 days.
Sources
Checked against GOV.UK on 21 October 2026. Rates and rules change, usually from 6 April, so we re-check every guide at least once a year.