How to Work Out Your Self-Employed Profit: From Turnover to Taxable Profit (2026/27)
Tax for a sole trader is charged on profit, but "profit" gets used for three different numbers: the net profit in your books, the taxable profit on your tax return and the profit you keep after tax. Mixing them up is the commonest reason a tax estimate is wrong. This guide takes one year's figures from turnover to profit after tax, step by step, using 2026/27 rates.
Written and reviewed by James Whitfield · Last reviewed 7 November 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
Contents ▾
- 1. Step 1: turnover, counted on the cash basis
- 2. Step 2: take off allowable expenses to reach net profit
- 3. Worked example: a decorator's year
- 4. Net profit, taxable profit and profit after tax are three numbers
- 5. What £1,000 of expenses is worth at different profits
- 6. When the trading allowance replaces expenses
Start with turnover, everything the business was paid in the tax year. Take off allowable business expenses to get net profit. Add back anything in your costs that HMRC does not allow, such as everyday clothing or the private share of a mixed-use bill, to get taxable profit. Income Tax and Class 4 National Insurance are worked out on taxable profit, and what is left is your profit after tax.12 Your drawings play no part: you pay tax on the profit whether you take it out or leave it in the business account.
- →Net profit = turnover − allowable expenses
- →Taxable profit = net profit + disallowable items added back
- →Profit after tax = taxable profit − Income Tax − Class 4 NI
- →Drawings are not an expense
Related: Profit after tax calculator · Allowable expenses: the full list · Paying yourself as a sole trader
- Taxable profit is turnover less allowable expenses: £40,000 of sales and £10,000 of expenses gives £30,000.1
- Money you take out for yourself (drawings) is never an expense.1
- Under the cash basis, the standard method, you count income and costs when the money moves.3
- Profit after tax is taxable profit less Income Tax and Class 4 National Insurance.45
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Step 1: turnover, counted on the cash basis
Turnover is the total your business was paid for its work and sales in the tax year, 6 April to 5 April, before any costs. Most sole traders use the cash basis, which is now the standard way: you record income when the money arrives and costs when you pay them, so you never pay tax on an invoice that has not been paid.3 Traditional accounting, which counts income when you invoice, is the alternative for businesses with a lot of stock or that need formal accounts for a lender.3
Turnover does not include money you put into the business yourself, a loan, or VAT you collect for HMRC if you are VAT registered.
Step 2: take off allowable expenses to reach net profit
Allowable expenses are the running costs of the business: materials and stock, travel, insurance, phone and office costs, premises costs, advertising, professional fees and similar.1 Under the cash basis, equipment you buy and keep for the business, such as tools or a laptop, is also claimed as an expense; cars are the exception and go through capital allowances.1
Where something is used privately as well, only the business part counts. GOV.UK's own example: a £200 phone bill with £70 of business calls gives a £70 expense.1
Worked example: a decorator's year
A self-employed decorator in England is paid £52,000 during 2026/27 and takes £24,000 out of the business account to live on. These are the business costs:
| Turnover | £52,000 |
| Paint, materials and dust sheets | −£9,500 |
| Van fuel, insurance and repairs | −£3,200 |
| Laptop for quotes and invoices (cash basis: claimed as an expense) | −£1,200 |
| Public liability insurance | −£600 |
| Accountant | −£450 |
| Phone: business share of a £600 bill | −£300 |
| Everyday trousers and trainers worn for work | −£180 |
| Net profit in the books | £36,570 |
| Add back the ordinary clothing (not allowable) | +£180 |
| Taxable profit | £36,750 |
| Income Tax | −£4,836 |
| Class 4 National Insurance | −£1,450.80 |
| Profit after tax | £30,463.20 |
The £24,000 of drawings does not appear anywhere in the calculation.1 The tax is the same whether the decorator drew £24,000 or the whole £30,463.20. The trousers and trainers are ordinary clothing, which is not allowable even when worn only for work, so they are added back.2 Protective clothing such as overalls or safety boots, or a uniform, would be allowable.
The tax of £6,286.80 is due on 31 January 2028, and if this is the decorator's first year with a bill of £1,000 or more, half as much again is due as the first payment on account for 2027/28.6
Net profit, taxable profit and profit after tax are three numbers
Net profit is the figure your bookkeeping produces: turnover less the costs you have recorded. It is a before-tax figure. For a sole trader there is no tax inside it, because the business does not pay tax separately from you.
Taxable profit is net profit adjusted to HMRC's rules: disallowable items added back, and the trading allowance or capital allowances applied. It is the figure that goes on the self-employment pages of your return, and the one to type into the calculator.
Profit after tax is what you keep once Income Tax, Class 4 National Insurance and any student loan repayment are paid. It is the figure to compare with a salary, or to plan your drawings around.
What £1,000 of expenses is worth at different profits
Because the tax is on what is left after expenses, an allowable £1,000 cost reduces the bill by your rate on the top slice of profit. The saving depends on where your profit sits:
| Profit £20,000 | saves £260 |
| Profit £40,000 | saves £260 |
| Profit £60,000 | saves £420 |
| Profit £105,000 | saves £620 |
An expense still costs you the other part of the £1,000, so it only makes sense if the business needs it. The saving is a reason to record every genuine cost, not to spend more.
When the trading allowance replaces expenses
Instead of your actual expenses, you can deduct the £1,000 trading allowance, which is simpler when your costs are small.7 It is one or the other: you cannot claim both, or capital allowances, for the same income.1 The allowance rises to £3,000 from 6 April 2027.
Frequently asked questions
Is net profit before or after tax for a sole trader?+
Before. A sole trader's net profit is turnover less business expenses, and Income Tax and Class 4 National Insurance are then charged on it (after any adjustments to reach taxable profit). The business does not pay tax separately from you.
What is the profit after tax formula?+
Profit after tax = taxable profit − Income Tax − Class 4 National Insurance (− any student loan repayment). On £30,000 of taxable profit in 2026/27 that is £30,000 − £3,486 − £1,045.80 = £25,468.20, outside Scotland.
Do I pay tax on turnover or profit?+
On profit. GOV.UK's example: turnover of £40,000 with £10,000 of allowable expenses means tax on £30,000.
Are my drawings taxed?+
Not as such. Drawings are not an expense and are not income on top of your profit; you are taxed on the profit, however much of it you draw.
Can I claim clothes I wear for work?+
Only protective clothing, uniforms or costumes. Everyday clothing such as suits, shirts or ordinary shoes is not allowable, even if you only wear it for work.
Sources & references
The rates, thresholds and rules in this guide are drawn from the official HMRC and GOV.UK sources below, using the confirmed 2026/27 figures. Each link opens the relevant official page in a new tab.
- Expenses if you're self-employed www.gov.uk/expenses-if-youre-self-employed
- Expenses if you're self-employed: clothing www.gov.uk/expenses-if-youre-self-employed/clothing
- Cash basis accounting www.gov.uk/simpler-income-tax-cash-basis
- Income Tax rates and Personal Allowances www.gov.uk/income-tax-rates
- Self-employed National Insurance rates www.gov.uk/self-employed-national-insurance-rates
- Understand your Self Assessment bill: payments on account www.gov.uk/understand-self-assessment-bill/payments-on-account
- Tax-free allowances on property and trading income www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
Estimate your sole trader tax
The sole trader tax calculator turns this guidance into a concrete monthly take-home and tax reserve estimate, based on 2026/27 HMRC rates. Enter taxable profit — not turnover.