What is the tax-free allowance for a sole trader?

£12,570 for the 2025/26 tax year - the same personal allowance as an employee. It reduces by £1 for every £2 of profit above £100,000 and disappears at £125,140.

Do sole traders pay National Insurance?

Yes. Class 4 NIC applies at 6% on profits from £12,570 to £50,270 and 2% above. Class 2 NIC is no longer routinely charged since April 2024; sole traders above the Small Profits Threshold get NIC credits without paying it.

When do sole traders pay their tax?

Through Self Assessment. The balancing payment is due 31 January after the tax year ends, alongside the first payment on account for the current year. A second payment on account is due 31 July.

How much tax should I set aside as a sole trader?

A rough rule: 25% of every invoice into a separate savings account if you are basic-rate, 35% if you are higher-rate. It over-collects slightly, which is safer than under-collecting and getting caught out at 31 January.

Do sole traders pay corporation tax?

No. Corporation tax only applies to limited companies. Sole traders pay income tax and Class 4 NIC on their profits through Self Assessment.

How much tax does a sole trader pay in the UK? (2026 rates)

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

A UK sole trader pays income tax at 20% on profits between £12,570 and £50,270, 40% between £50,270 and £125,140, and 45% above that. Class 4 National Insurance adds 6% on profits from £12,570 to £50,270 and 2% above. There is no tax on the first £12,570 of profit.

As a UK sole trader you pay income tax and National Insurance on your business profits, not on your turnover. That is the most important thing to grasp before you look at the rates. Turnover minus allowable expenses equals profit, and profit is what gets taxed.

Here is what the numbers look like for the 2025/26 tax year, with worked examples.

The tax-free bit: the personal allowance

Every UK sole trader gets a personal allowance of £12,570. You pay nothing on the first £12,570 of profit. Above that, income tax kicks in.

The personal allowance shrinks by £1 for every £2 of income over £100,000, and disappears entirely at £125,140. Very few sole traders hit this, but worth knowing if profits are strong.

Income tax bands (2025/26, England, Wales and Northern Ireland)

Applied on profits above the £12,570 personal allowance:

Basic rate: 20% on profits from £12,571 to £50,270
Higher rate: 40% on profits from £50,271 to £125,140
Additional rate: 45% on profits above £125,140

Scotland uses different bands and rates. If you are a Scottish taxpayer, check gov.uk for the current Scottish income tax bands.

National Insurance for sole traders

Two classes apply:

Class 2 NIC is no longer routinely payable. Since April 2024, sole traders with profits above the Small Profits Threshold (£6,725) get their NIC record credited without paying Class 2. You only pay it voluntarily if profits are below £6,725 and you want to protect your State Pension.
Class 4 NIC is the one that actually costs money. For 2025/26:
- 6% on profits from £12,570 to £50,270
- 2% on profits above £50,270

Class 4 is on top of income tax, so your effective rate as a basic-rate sole trader is 20% + 6% = 26% on profits in that band.

Worked examples

Example 1: sole trader with £30,000 profit

Personal allowance: first £12,570 tax-free.
Basic rate income tax: (£30,000 - £12,570) × 20% = £3,486
Class 4 NIC: (£30,000 - £12,570) × 6% = £1,046
Total tax and NIC: £4,532 (about 15% of profit)

Example 2: sole trader with £60,000 profit

Personal allowance: first £12,570 tax-free.
Basic rate income tax: (£50,270 - £12,570) × 20% = £7,540
Higher rate income tax: (£60,000 - £50,270) × 40% = £3,892
Class 4 NIC basic band: (£50,270 - £12,570) × 6% = £2,262
Class 4 NIC upper band: (£60,000 - £50,270) × 2% = £195
Total tax and NIC: £13,889 (about 23% of profit)

Example 3: sole trader with £100,000 profit

Personal allowance: full £12,570 (just shy of the £100,000 taper).
Income tax: £7,540 (basic) + £19,892 (higher, on £49,730) = £27,432
Class 4 NIC: £2,262 + £995 = £3,257
Total: £30,689 (about 31% of profit)

At this level, switching to a limited company is often worth modelling.

When do you pay?

Sole traders pay through Self Assessment:

31 January - balancing payment for the previous tax year, plus the first payment on account for the current year.
31 July - second payment on account for the current year.

Payments on account are HMRC's way of splitting your bill into two instalments based on last year's tax. They apply once your annual bill is over £1,000. First-year sole traders often get caught by them, so budget for 150% of the first bill, not 100%.

VAT: a separate question

VAT is triggered by turnover, not profit. If your turnover crosses £90,000 in a rolling 12-month window, you must register for VAT. Once registered, you also come under Making Tax Digital for VAT.

What most sole traders forget

Set aside tax as you go. A rough rule for basic-rate sole traders is 25% of every invoice into a separate savings account. Higher-rate: 35%.
Claim every allowable expense. Software, mileage, use of home, phone, professional subscriptions, training. Our WFH tax calculator covers the home-working bit.
Register on time. You must register for Self Assessment by 5 October after the end of your first tax year of trading. Late registration triggers penalties.
Plan for MTD. Sole traders over £50,000 come into MTD for Income Tax from April 2026.

If you would like a proper tax projection for your own numbers, or want us to handle Self Assessment for you, get in touch or read more about our self assessment service.