Last updated: October 2026
Knowing how to estimate your business tax bill is one of the simplest ways to protect your cash flow. No business owner enjoys paying tax, but it is far less stressful when you know the figure in advance and have set the money aside. The real problem starts when a bill arrives out of nowhere and you have to dip into savings or borrow to pay it.
This guide shows which taxes apply to your business, the 2026/27 rates you need, and a simple way to estimate your bill throughout the year.
Which Taxes Does Your Business Pay?
The taxes you pay depend on how your business is set up.
Sole Traders
- Income Tax on your profits
- Class 4 National Insurance on your profits
Limited Companies
- Corporation Tax on company profits
- Income Tax and National Insurance on any salary, through PAYE
- Dividend Tax on dividends above the £500 allowance
Other Taxes
- VAT, if your business is VAT registered
- Employer National Insurance, if you have employees
Key Tax Rates for 2026/27
| Tax | Rate |
|---|---|
| Personal Allowance | First £12,570 tax-free |
| Income Tax basic rate (£12,571 to £50,270) | 20% |
| Income Tax higher rate (£50,271 to £125,140) | 40% |
| Income Tax additional rate (over £125,140) | 45% |
| Class 4 National Insurance (£12,570 to £50,270) | 6% |
| Class 4 National Insurance (over £50,270) | 2% |
| Corporation Tax (profits up to £50,000) | 19% |
| Corporation Tax (profits over £250,000) | 25%, with marginal relief in between |
| Dividend Tax (basic / higher / additional rate) | 10.75% / 35.75% / 39.35% |
| Employer National Insurance (above £5,000 per employee) | 15% |
These figures apply to most taxpayers in England, Wales and Northern Ireland. Scotland sets its own Income Tax bands. You can check the current rates on HMRC’s Income Tax rates page.
Worked Example: Estimating Your Tax Bill
Sole trader with £40,000 profit:
- Income Tax: (£40,000 − £12,570) × 20% = £5,486
- Class 4 National Insurance: (£40,000 − £12,570) × 6% = £1,646
- Estimated total: about £7,130, or roughly 18% of profit
Limited company with £40,000 profit:
- Corporation Tax: £40,000 × 19% = £7,600
- Any salary or dividends you take out are then taxed separately in your own name
For directors, the right mix of salary and dividends makes a big difference to the total tax paid.
A Simple Rule of Thumb
Many small business owners set aside 20% to 30% of their profit for tax, then refine the figure as the year goes on. Keep this money in a separate savings account, so you never mistake it for spending money.
Remember that sole traders often pay payments on account as well as the balance due. In your first January, this can mean paying up to one and a half years of tax at once. Our guide to Self Assessment deadlines explains when each payment falls due.
Why Manual Records Make Estimates Harder
Spreadsheets and paper receipts make it hard to estimate your tax bill with any confidence. Common problems include:
- Lost receipts and missing expenses
- Formula errors in spreadsheets
- Out-of-date figures
- No real-time view of your profit
If your records are not accurate, your tax estimate will not be either.
How Accounting Software Helps
Cloud software such as FreeAgent or Xero makes estimating much easier:
- Automatic bank feeds: income and expenses flow in from your bank account.
- Live tax estimates: see running figures for Income Tax, Corporation Tax and VAT.
- Digital receipts: photograph receipts so nothing gets lost.
- Forecasting: see how future income and costs will change your bill.
Digital records also prepare you for Making Tax Digital, which now applies to many sole traders and landlords.
Make It a Monthly Habit
Review your figures once a month. A quick check tells you how much tax you are building up, when it is due, and whether you need to adjust your prices or spending. Estimating then becomes part of your routine, not a last-minute panic.
How Direct Assist Accountants Can Help
Software is powerful, but expert advice makes it work harder for you. We help small businesses across Slough and the Thames Valley:
- Estimate tax bills accurately and build a tax reserve
- Set up and manage FreeAgent or Xero through our bookkeeping service
- Claim every allowable expense and relief
- File Self Assessment returns and Corporation Tax returns on time
Need help estimating your business tax bill? Contact Direct Assist Accountants for a free consultation.
This article reflects UK tax rates for the 2026/27 tax year. Rates and thresholds can change. For advice on your own situation, consult a qualified accountant.