How Much Tax Does a Sole Trader Pay?
Sole traders pay tax on their profits, not their turnover. Discover the latest UK Income Tax and National Insurance rates, see practical examples and estimate your tax bill using our free interactive calculator.
How much tax does a sole trader pay? In 2026/27, a UK sole trader normally pays Income Tax on taxable profits above their available Personal Allowance of £12,570, plus Class 4 National Insurance on profits above £12,570. The exact amount depends on total income, tax residence, allowances and reliefs.
Do sole traders pay tax on turnover or profit?
You normally pay Income Tax on taxable profit, not all the money customers pay you. Profit is business income minus allowable business costs, with adjustments where tax rules require them.
Typical expenses can include eligible software subscriptions, business insurance, professional fees, travel for business purposes, office costs and qualifying equipment. Private spending is not deductible merely because it is paid from a business account. See our guide to tax-deductible expenses.
Sole trader Income Tax rates for 2026/27
The following bands apply to non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland, assuming the standard Personal Allowance.
| Annual income | Income Tax rate |
|---|---|
| Up to £12,570 | 0% (normally) |
| £12,571–£50,270 | 20% |
| £50,271–£125,140 | 40% (allowance tapers above £100,000) |
| Over £125,140 | 45% |
Important: Your Personal Allowance is reduced by £1 for every £2 of adjusted net income over £100,000. Scottish residents have different non-savings Income Tax bands and rates. See our Personal Allowance guide and higher-rate tax guide.
How much National Insurance does a sole trader pay?
Class 4 National Insurance is normally calculated on self-employed profits at 6% between £12,570 and £50,270 and 2% above £50,270. These are marginal rates, not rates charged on all your profits.
For 2026/27, if profits reach £7,105, Class 2 contributions are generally treated as paid without a separate Class 2 bill. Those below that threshold may be eligible to pay voluntary Class 2 contributions at £3.65 per week to protect their National Insurance record.
Sole trader tax calculator 2026/27
Estimate Income Tax, Class 4 National Insurance and take-home profit.
Estimated effective Income Tax and Class 4 NI: 17.83% of profit.
Illustrative annual estimate only. Assumes trading profit is your only income, a full standard Personal Allowance subject to tapering, no pension or Gift Aid adjustments, no student loan, no special reliefs, and no voluntary Class 2 contributions. Does not include VAT, payments on account, other taxes or tax already paid. The calculator does not replace a Self Assessment calculation.
Sole trader tax examples: £20,000 to £100,000 profit
These illustrations assume England, Wales or Northern Ireland, no other income and no special adjustments. All figures relate to the 2026/27 tax year.
| Annual profit | Income Tax | Class 4 NI | Total | After tax and NI |
|---|---|---|---|---|
| £20,000 | £1,486.00 | £445.80 | £1,931.80 | £18,068.20 |
| £30,000 | £3,486.00 | £1,045.80 | £4,531.80 | £25,468.20 |
| £40,000 | £5,486.00 | £1,645.80 | £7,131.80 | £32,868.20 |
| £50,000 | £7,486.00 | £2,245.80 | £9,731.80 | £40,268.20 |
| £60,000 | £11,432.00 | £2,456.60 | £13,888.60 | £46,111.40 |
| £100,000 | £27,432.00 | £3,256.60 | £30,688.60 | £69,311.40 |
When do sole traders pay tax?
Most sole traders report their profits through Self Assessment. The tax year runs from 6 April to 5 April. Online tax returns and balancing payments are generally due by 31 January following the end of the tax year.
Example: Your 2026/27 return normally needs to be filed online by 31 January 2028, with any balancing payment due then. A second payment on account, if applicable, is normally due by 31 July 2028.
Why can the first tax bill feel unusually large?
HMRC may ask for payments on account towards the next tax year, normally in two instalments based on the previous year's relevant liability. This means your first January payment can include the tax you owe for the year just ended and an advance payment towards the next year. Payments on account do not apply in every case; there are exemptions, including when the previous relevant liability was below £1,000 or sufficient tax was collected at source.
See our Self Assessment guide and HMRC Time to Pay guide.
How can a sole trader legally reduce their tax bill?
Claim allowable costs
Keep records of qualifying business expenses and distinguish private from business use.
Check pension relief
Eligible personal pension contributions may reduce your adjusted net income and affect higher-rate tax.
Review business structure
Compare remaining a sole trader with a limited company based on profit, cash withdrawals and administration.
The £1,000 trading allowance can be useful in qualifying circumstances, but it generally cannot be claimed alongside actual expenses for the same trade. Capital allowances, losses and other reliefs depend on individual circumstances. Read self-employed vs limited company and capital allowances explained.
Do sole traders need to register for VAT or Making Tax Digital?
VAT is separate from Income Tax and National Insurance. VAT registration depends primarily on taxable turnover, not profit. Making Tax Digital for Income Tax introduces digital record-keeping and reporting obligations in phases, based on qualifying income and eligibility. Check the rules that apply to your tax year and circumstances.
Useful reading: VAT registration, MTD quarterly updates and HMRC online services.
Frequently asked questions
How much tax does a sole trader pay on £30,000?
With £30,000 profit, a full Personal Allowance and no other income, an England-based sole trader would pay approximately £3,486 Income Tax and £1,045.80 Class 4 National Insurance in 2026/27: £4,531.80 combined.
Do sole traders pay tax in their first year?
Yes, if taxable profits and other income result in a liability. Tax is usually settled after the tax year through Self Assessment, and payments on account may also arise.
Can a sole trader take a salary?
A sole trader does not normally pay themselves a deductible salary. Money taken out for personal use is drawings; tax is based on business profits, not drawings.
Is National Insurance included in the 20% Income Tax rate?
No. Class 4 National Insurance is calculated separately from Income Tax.
What if I have a PAYE job and a sole trader business?
Your employment income can use up your Personal Allowance and tax bands, and your National Insurance position can be more complicated. The calculator above assumes no other income and is not suitable for this combined-income scenario.
How much should a sole trader set aside for tax?
A common starting point is to reserve a proportion of profit in a separate savings account, but the right percentage varies substantially with your profit level, other income, residence and payments on account. Use a tailored estimate rather than assuming one percentage suits everyone.
Need help with your sole trader tax return?
The Online Accountants provides UK-wide accounting and Self Assessment support, with clear fees, a dedicated point of contact and no long-term contract.
View our accounting fees → Explore Self Assessment →Prepared for The Online Accountants. Tax figures reflect the 2026/27 rules described above. Reviewed October 2026. General guidance, not individual tax advice.