Sole traders pay Income Tax and Class 4 National Insurance on profit, not on everything that comes in the door. Profit is turnover minus the costs HMRC lets you deduct.
Turnover still matters. It is the figure that decides whether you have to register, and later whether VAT or Making Tax Digital kick in. You need both numbers. You just use them for different jobs.
The two figures
Turnover is the total you were paid for the work, before costs. Invoices, card takings, cash, tips you keep. HMRC also calls this gross income or receipts.
Profit is what is left after allowable expenses, or after the £1,000 trading allowance if you use that instead. That is the number Income Tax and Class 4 are calculated on.
GOV.UK's own example: turnover £40,000, allowable expenses £10,000, taxable profit £30,000. You are taxed on the £30,000.
Plug £30,000 profit into the calculator for 2026/27 in England, Wales or Northern Ireland and the estimate is £4,531.80. If you had treated the £40,000 as the taxable figure you would have set aside far too much.
Why people get this wrong
A PAYE job taxes the number on the payslip. There is no expenses column. Self-employment has one, and ignoring it is how you overpay.
The other mistake is the other way round. Someone takes £1,600 in a year, spends £900 on materials, keeps £700, and assumes they are under the radar because "profit was under £1,000". Registration looks at turnover. £1,600 means they have to register. The £900 only helps once they are on a return.
Which figure each rule uses
For 2026/27:
- Register for Self Assessment: turnover over £1,000 in the tax year (or one of the other triggers). Profit is irrelevant at this step.
- Income Tax and Class 4 NI: profit. Personal allowance £12,570, then the usual bands. Class 4 is 6% between £12,570 and £50,270, then 2%.
- Class 2 NI: also profit. Treated as paid at £7,105 or more.
- VAT registration: taxable turnover, currently £90,000.
- Making Tax Digital for Income Tax: gross self-employment plus property income, before expenses. £50,000 from April 2026, £30,000 from April 2027.
So a busy year with fat costs can mean: you must register, you might be in MTD, and your actual tax bill is still modest. Those are not contradictions. They are different tests.
What you can knock off
Only costs incurred wholly and exclusively for the work. Stock, materials, software, a share of the phone, mileage at 55p for the first 10,000 business miles in 2026/27, the home-office flat rate if you qualify. What you can claim is the fuller list.
You cannot deduct drawings (money you pay yourself), client entertainment, ordinary clothes, or fines. If you use the trading allowance you cannot also claim the real expenses that year. Pick whichever is larger.
From 2024/25, cash basis is the default. You record money when it arrives or leaves, not when you raise the invoice. That can move turnover and expenses between tax years if customers pay late.
A quick way to keep the two apart
One column for money in, one for money out that is genuinely for the work. The first column is turnover. Subtract the second and you have profit. That is enough to estimate the bill and to know whether 5 October is your problem.
If you also have a PAYE job, the self-employed profit sits on top of the salary. The personal allowance is usually eaten by the job, so the side income is often taxed from the first pound. Registering when you already have a job covers that.