How much tax does a sole trader pay in the UK?

If you work for yourself, one of the first questions you are likely to ask is simple: how much tax will I actually pay as a sole trader?

The honest answer is that it depends on your profit, not just your sales. You do not pay tax on every pound that comes into your business. You pay tax on what is left after allowable business expenses have been deducted.

For example, if you earn £45,000 from your work but spend £8,000 on allowable business costs, your taxable business profit is £37,000. That profit is what HMRC looks at when working out your Income Tax and National Insurance.

With millions of sole traders operating across the UK, this is a common question for freelancers, contractors, tradespeople, consultants, landlords and small business owners. Getting it right helps you avoid surprises when your tax bill arrives.

What taxes does a sole trader pay?

As a sole trader, you usually pay Income Tax on your taxable profits and Class 4 National Insurance if your profits are above the threshold. You may also need to pay VAT if your taxable turnover goes over the VAT registration threshold.

If you employ staff, you may also need to deal with payroll, PAYE, National Insurance deductions and workplace pension duties.

You may also need to make Payments on Account towards your next tax bill if your Self Assessment bill is more than £1,000 and less than 80% of your tax has already been collected at source.

This is where working with an accountant for sole trader businesses can make things much clearer. Instead of guessing what you may owe, you can plan ahead with proper figures.

How Income Tax works for sole traders

For the 2026/27 tax year, the standard Personal Allowance is £12,570. This means you usually pay no Income Tax on the first £12,570 of taxable income.

After that, the Income Tax bands for England, Wales and Northern Ireland are:

0% on income up to £12,570
20% basic rate on income from £12,571 to £50,270
40% higher rate on income from £50,271 to £125,140
45% additional rate on income over £125,140

If your income goes above £100,000, your Personal Allowance is gradually reduced. If you live in Scotland, different Income Tax bands may apply, so it is worth checking your position carefully.

A self-employed accountant can help you understand which band you fall into and whether you are claiming the right expenses before your final tax figure is calculated.

How National Insurance works for sole traders

Alongside Income Tax, sole traders may also pay National Insurance.

For 2026/27, Class 4 National Insurance is charged at 6% on profits over £12,570 up to £50,270, and 2% on profits over £50,270.

Class 2 National Insurance is no longer compulsory for many self-employed people with profits above the lower threshold, as it is treated as paid to protect your National Insurance record. If your profits are below the relevant level, you may choose to pay voluntary Class 2 contributions to protect your State Pension record.

This is one reason why good sole trader accountancy services are useful. It is not only about submitting a return. It is also about making sure your tax, National Insurance and records are handled properly.

Example: sole trader tax on £30,000 profit

Let’s say your sole trader profit is £30,000 for the year.

Your first £12,570 is covered by the Personal Allowance. That leaves £17,430 taxable at 20%.

Income Tax would be about £3,486.

You would also pay Class 4 National Insurance on profits above £12,570. That is £17,430 at 6%, which is about £1,045.80.

So, on £30,000 profit, your combined Income Tax and Class 4 National Insurance would be about £4,531.80, before considering any other income, student loans, pension contributions, Payments on Account or adjustments.

This is why it is sensible to set money aside throughout the year. Many sole traders keep around 25% to 30% of profit in a separate tax savings account, although the right amount depends on your income level.

Example: sole trader tax on £60,000 profit

If your profit is £60,000, part of your income falls into the higher-rate band.

Your Income Tax would be roughly:

£37,700 taxed at 20% = £7,540
£9,730 taxed at 40% = £3,892

Total Income Tax would be about £11,432.

Your Class 4 National Insurance would be roughly:

£37,700 at 6% = £2,262
£9,730 at 2% = £194.60

Total Class 4 National Insurance would be about £2,456.60.

So, the total Income Tax and Class 4 National Insurance on £60,000 profit would be about £13,888.60, before any other adjustments.

With the right sole trader accounting support, you can see these figures before the deadline, not after it is too late to plan.

What expenses can reduce your sole trader tax bill?

You can usually deduct costs that are wholly and exclusively for your business. These may include tools, stock, software, business insurance, professional fees, office costs, travel for business, marketing, phone costs and part of your home office costs if you work from home.

The important point is that expenses need to be reasonable, accurate and supported by records. HMRC can ask questions later, so keeping receipts and using proper bookkeeping software is not just good practice, it protects you.

If you use digital bookkeeping, a certified QuickBooks accountant can help keep your income and expenses organised during the year, rather than trying to fix everything close to the deadline.

Do sole traders need to register for VAT?

You must register for VAT if your taxable turnover goes over £90,000 in a 12-month period, or if you expect it to go over £90,000 in the next 30 days.

VAT is based on turnover, not profit, so a business with tight margins can still need to register. Once registered, you usually charge VAT on your sales, submit VAT returns and keep digital VAT records.

If you are close to the VAT threshold, speaking to a VAT return accountant can help you understand the timing, schemes available and what your prices may need to look like.

When do sole traders pay tax?

Most sole traders report their income through Self Assessment. The online tax return and any tax due are usually due by 31 January after the end of the tax year.

For example, for the 2026/27 tax year, which runs from 6 April 2026 to 5 April 2027, the online filing and payment deadline is 31 January 2028.

A self-assessment tax return accountant can prepare and file your return, calculate what you owe and help you avoid missed deadlines.

Why tax planning matters when you are self-employed

When you are employed, tax is usually taken before you are paid. When you are self-employed, the money comes to you first, and the tax bill arrives later. That can be dangerous if you treat all your income as available to spend.

Good planning helps you understand what is yours, what belongs to HMRC and what you can reinvest in the business. It also helps you decide whether staying as a sole trader is still right for you as your profits grow.

If you want practical help from chartered accountants in Slough, or you need accountants for self-employed individuals, getting advice early can save a lot of stress later.

FAQs

How much can I earn as a sole trader before paying tax?

You usually do not pay Income Tax on the first £12,570 of taxable income because of the Personal Allowance. However, you may still need to register for Self Assessment and report your income to HMRC, even if your tax bill is low or nil.

Do sole traders pay tax on revenue or profit?

Sole traders pay tax on profit, not total revenue. Your profit is your business income minus allowable expenses. This is why accurate bookkeeping is important, because missed expenses can mean you pay more tax than necessary.

Do I need an accountant as a sole trader?

You are not legally required to have an accountant, but many sole traders choose one because tax rules, expenses, deadlines and HMRC forms can take up a lot of time. Professional sole trader accounting services can also help reduce errors and keep your records in order.

How much should I save for tax as a sole trader?

A common approach is to set aside 25% to 30% of your profit, but the right amount depends on your income, expenses and tax band. Higher earners may need to save more, especially if Payments on Account apply.

Can a sole trader employ staff?

Yes, a sole trader can employ staff. If you do, you will usually need to register as an employer, run payroll, deduct PAYE and National Insurance where required, and meet workplace pension duties.

Need help with your sole trader tax?

If you are unsure how much tax you will pay, or you want your accounts handled properly from the start, Asmat & Co can help. Our team supports sole traders with tax returns, bookkeeping, VAT, payroll and year-round advice, all in a clear and practical way.

Get in touch with Asmat & Co today and let us take care of the numbers, so you can focus on running your business.