Key takeaways
- Your first 31 January demands your bill plus half of next year's bill in one go — 150% of what you expected.
- On a £30,000 profit, the bill is income tax at 20% of the profit above £12,570 plus Class 4 National Insurance at 6%.
- Class 2 is treated as paid once profit reaches £7,105; below that, voluntary Class 2 at £3.65 a week protects your National Insurance record.
- The trading allowance is £1,000 of gross trading income a year, tax-free, and your online return and payment are both due by 31 January.
Your first Self Assessment bill is not the shock. The shock is the first 31 January, when HMRC asks for your bill plus half of next year's bill in one go — 150% of what you expected.
Every year, thousands of newly self-employed people do the maths, set aside the tax, and still get caught out in January. Not because they calculated wrong, but because they calculated the wrong thing. Your bill is one number; the cash HMRC wants on 31 January is a bigger one. This article shows both, with the exact workings, so January never surprises you.
What your bill actually is
As a sole trader you pay two things through Self Assessment: income tax on your total income (profit plus any employment income) at the same bands as employees, and Class 4 National Insurance on your profit alone — 6% between £12,570 and £50,270, then 2% above. Class 2 is treated as paid once your profit reaches £7,105, so there is nothing extra to pay; below that, voluntary Class 2 at £3.65 a week protects your National Insurance record. Here is the full working on a £30,000 profit, hand-checked against the GOV.UK Self Assessment rules:
| Part of the bill | Working | Amount |
|---|---|---|
| Income Tax | 20% of (£30,000 − £12,570) | £3,486.00 |
| Class 4 National Insurance | 6% of (£30,000 − £12,570) | £1,045.80 |
| Class 2 National Insurance | Profit above the £7,105 threshold — treated as paid | £0.00 |
| Bill for 2026/27 | £4,531.80 |
That is 15.1% of your profit — set aside that share of every invoice and the bill itself is covered. But the bill is not what you pay in January.
Payments on account: the 150% January
If your bill is over £1,000, HMRC asks you to pay next year's tax in advance, in two instalments of half your bill: one on 31 January, one on 31 July. In your first year you have made no advance payments, so the first 31 January brings the whole bill plus the first instalment together:
| Payment | Amount |
|---|---|
| Bill for 2026/27 | £4,531.80 |
| First payment on account (half the bill) | £2,265.90 |
| Due by 31 January 2028 | £6,797.70 |
| Due by 31 July 2028 (second instalment) | £2,265.90 |
That is the shock: £6,797.70 in one payment, not £4,531.80. The payments on account are not extra tax — they are set against next year's bill, and if next year's bill is lower you get the difference back — but the cash has to leave your account in January either way. The self-employed tax calculator shows the first-January figure for any profit, because that is the number that matters.
How the bill scales
At small profits the system is gentle. On a £5,000 profit there is no income tax and no Class 4 at all — the bill is £0.00 — but the year does not count towards your State Pension on its own, because £5,000 is below the £7,105 small-profits threshold. Voluntary Class 2 at £3.65 a week (£189.80 a year) buys the year back. At the other end, on a £60,000 profit the bill is £13,888.60 — income tax £11,432.00 plus Class 4 £2,456.60, with the 2% Class 4 rate biting above £50,270 — and the first January would demand £20,832.90. The set-aside percentage rises with profit: 15.1% at £30,000, 23.1% at £60,000.
Expenses: what you can actually claim
Your profit — and therefore your tax bill — is your turnover minus allowable expenses, so what counts as an expense matters as much as what you earn. The rule is that an expense must be wholly and exclusively for the business: a laptop used only for work qualifies; a laptop used half for work and half for Netflix qualifies only for the business half. The commonest claims are the ones people forget: a proportion of your home costs if you work from home (HMRC publishes flat-rate amounts for this, or you can work out the actual proportion), your phone and broadband, travel to clients (but not your commute to a regular workplace), professional subscriptions, and accountancy fees. What does not qualify is personal spending dressed up as business — clothes you could wear outside work, family meals, fines. Keep receipts and a simple record of what each expense was for: if HMRC asks, the record is your defence, and a missing receipt is a disallowed expense.
The cash basis makes this simpler than it sounds. Most sole traders with turnover under £150,000 can use the cash basis: you record income when it arrives and expenses when you pay them, and you do not need to track debtors, creditors or stock. It is the default for a reason — it matches how small businesses actually think about money. The alternative, traditional accounting, records income when you invoice it, which can mean paying tax on money you have not received yet. Unless your business is complex, the cash basis is the right choice, and it is the basis the calculator above assumes.
Paying the first January bill
The hardest part of the first bill is not the size — it is that it arrives all at once. On a £30,000 profit, the bill is £4,531.80 and the first January cash is £6,797.70: the bill plus half of it again, because HMRC collects the first payment on account at the same time. The way to survive that is to never let the money sit in your current account as if it were yours. The rule is simple: from the first pound of profit, move the set-aside percentage into a separate account and do not touch it. On £30,000 of profit that is £377.65 a month, or about £87.15 a week — small enough to be painless while the money is coming in, large enough to matter when January arrives. The set-aside percentage in the self-employed tax calculator is the number to use: it is the bill as a share of profit, and it rises with profit, so a £60,000 profit needs a bigger slice than a £30,000 one.
If January arrives and the money is not there, do not ignore the bill. HMRC charges interest from 1 February and a 5% surcharge after 30 days, and the surcharge repeats — but HMRC will also agree a Time to Pay arrangement if you contact them before the deadline and can show you can pay over time. A Time to Pay plan spreads the bill over up to 12 months, usually with interest but without the surcharges, and it stops the enforcement letters. What does not work is waiting: the longer you leave it, the more interest accrues and the less willing HMRC is to agree a plan. And once the first year is behind you, the system gets easier — the payments on account smooth the second year, because you are paying in January and July instead of everything in one go. The first year is the cliff; every year after it is a slope.
The trading allowance, and the deadline
Two practical points. First, the trading allowance: £1,000 of gross trading income a year is tax-free, and above £1,000 you can deduct the allowance instead of your actual expenses — not both. If your expenses are small, the allowance is usually the better deal. It rises to £3,000 from 6 April 2027. Second, the deadline: your online return and your payment are both due by 31 January. Miss it and there is an automatic £100 late-filing penalty even if you owe no tax, plus interest on late payment. File early, pay early, and January is just another month.
The one thing to remember about the first tax bill is that it is never just the bill.
On a £30,000 profit the bill is £4,531.80, but the first January cash is £6,797.70 — the bill plus half of it again — and that second half is what catches people out. The defence is boring and it works: from the first pound of profit, move £377.65 a month into a separate account and do not touch it. The set-aside percentage the self-employed tax calculator shows is the number to use, and it rises with profit, so re-check it whenever your income jumps. The first year is the cliff; every year after it is a slope, because the payments on account smooth the cash. Get through January once, and the system starts working for you instead of against you.
Work out your first January figure
The self-employed tax calculator shows the first-January figure for any profit, because that is the number that matters.
Figures from the 2026/27 rates, last checked against GOV.UK on 5 November 2026. See all the rates on UK tax rates 2026/27. Next in this series: Umbrella companies, explained: where every deduction goes.