Sole Trader Tax Guide: What You Pay and When

Sole trader tax falls on your profit, not your takings. Income tax is charged at the same rates as a salary, and Class 4 National Insurance is added on self-employed profit. Most people pay both through Self Assessment, by 31 January after the tax year ends.

This tax doesn’t come off your earnings as you go. Wages usually have tax deducted automatically, but a sole trader’s bill doesn’t take shape until the tax year closes. In year one, it can reach one and a half times the year’s tax, advance payment included.

On 2026/27 rates in England, Wales and Northern Ireland, a sole trader with no other income owes nothing until profit passes £12,570. From there up to £50,270, each pound attracts 20% income tax and 6% Class 4. Scottish taxpayers use their own bands, set by the Scottish Parliament.

Your answer also shifts if you’ve got a salary alongside the business, an income above £100,000, or turnover nearing the Making Tax Digital and VAT thresholds.

First, though, there’s a test: does the trade bring in more than £1,000 in a tax year?

Sole trader tax is charged on profit

Profit is what’s left of your self-employed income once allowable expenses come off. It’s the profit that gets taxed, not the money coming in.

Sole trader tax rates are simply the current income tax rates, applied to your profit plus any other income on your sole trader Self Assessment return.

For 2026/27 in England, Wales and Northern Ireland, with the standard Personal Allowance:

• The first £12,570 of income carries no income tax.
• Income from £12,571 to £50,270 is taxed at the basic rate of 20%.
• Income from £50,271 to £125,140 is taxed at the higher rate of 40%.
• Income over £125,140 is taxed at the additional rate of 45%.

Those thresholds are due to stay frozen until 2030/31, so any rise in profit lands above lines that aren’t moving.

A sole trader personal allowance is nothing special: it’s the standard £12,570 Personal Allowance, sitting tax-free at the bottom of your income. Above £100,000 it starts to shrink, by £1 for every £2 of adjusted net income over that point, and it’s gone completely at £125,140.

On each extra £1 of adjusted net income in that stretch, you pay 40p in tax and lose 50p of allowance, which is taxed at 40% too. That’s 60p in all, before any Class 4.

Living in Scotland means Scottish Income Tax on your earnings, pension and most other taxable income, while savings interest and dividends follow the same rates as the rest of the UK. Scottish bands run from a 19% starter rate to a 48% top rate, with the 42% higher rate starting at £43,663, and the Income Tax in Scotland page on GOV.UK lists all six.

What £29,250 of profit costs you in tax

Picture a sole trader in England with £38,400 of turnover, £9,150 of expenses and no other income. That leaves a profit of £29,250, and here’s how the 2026/27 bill builds up:

1. £16,680 of the profit is taxable, once the £12,570 Personal Allowance comes off £29,250.
2. £3,336.00 is income tax, at 20% of that £16,680.
3. £1,000.80 is Class 4 National Insurance, at 6% of the profit above £12,570.
4. £4,336.80 is the total bill, just under 15% of the profit.

Class 2 doesn’t feature, because profit of £7,105 or more counts as Class 2 paid without any money changing hands.

With no other income, the two charges run side by side between £12,570 and £50,270, so each extra pound of profit costs 26p: 20p of income tax and 6p of Class 4. From £50,270 up to £100,000 the figure is 42p, split 40p and 2p.

Scotland changes the income tax line. On the same £29,250, Scottish Income Tax comes to £3,296.33, which is £39.67 less; at £48,000 of profit the picture flips, with £8,142.05 due in Scotland against £7,086.00 elsewhere in the UK.

A salary changes things again. Take £24,000 from a job plus £8,500 of profit on the side: income tax on the combined £32,500 is £3,986.00, PAYE has collected £2,286.00 of it through a standard tax code, and the remaining £1,700.00 goes through Self Assessment.

There’s no Class 4 in that case, since Class 4 is measured on self-employed profit and £8,500 doesn’t pass the £12,570 limit.

For your own numbers, HMRC’s Self Assessment tax calculator gives an estimate worked out on the standard Personal Allowance.

Sole trader National Insurance rests on yearly thresholds

Sole trader National Insurance comes in two classes, and two profit thresholds decide which one, if either, you pay.

Those thresholds and the rates are set for each tax year, so they can change from one year to the next. The Class 2 threshold, for example, rose from £6,845 in 2025/26 to £7,105 in 2026/27.

Using 2026/27 as the example year, where your profit lands decides what’s due:

• Profit under £7,105 means nothing is due, though voluntary Class 2 at £3.65 a week remains an option.
• Profit from £7,105 to £12,570 still means nothing to pay, and Class 2 counts as paid, which keeps your National Insurance record protected.
• Profit over £12,570 adds Class 4 at 6% up to £50,270 and 2% on anything above, with Class 2 still counting as paid.

Before relying on these figures, check the self-employed rates on GOV.UK for the tax year you’re in.

Most people pay sole trader Class 4 National Insurance through Self Assessment, alongside income tax, and it counts towards payments on account as well. For more on the limits, see the Class 4 National Insurance contributions guide.

In a low-profit year, paying voluntary Class 2 can help you keep qualifying for the State Pension and other benefits. You have to be registered as a sole trader to pay it, whatever your income, and the Class 2 National Insurance guide covers the voluntary route.

Sole trader tax deadlines can front-load year one

The tax year runs from 6 April to 5 April, and the return comes after it ends. The same dates come round every year:

• An online return is due by 31 January after the tax year ends.
• A paper return has to reach HMRC three months earlier, by 31 October.
• Tax owed for the year is due by 31 January, alongside any first payment on account.
• Where payments on account apply, the other half of the advance is due by 31 July.

Filing late brings a £100 penalty straight away. Paying late adds 5% of the unpaid tax at 30 days, again at six months and again at 12 months, with interest on top.

Payments on account are advance instalments towards the next year’s bill, Class 4 included. Each is usually half of the previous year’s tax, due on 31 January and 31 July, under the payments on account rules.

You don’t have to make them if last year’s tax was less than £1,000, or if more than 80% of it was collected outside Self Assessment, through a tax code for instance.

Year one is where this bites. With no advance payments behind you, the first January covers the whole bill, and half as much again goes towards the year after: in the £29,250 example, £4,336.80 plus £2,168.40, so £6,505.20 on 31 January and another £2,168.40 on 31 July.

Payments on account apply to the salaried example as well. Its £1,700 bill isn’t under £1,000, and PAYE collected about 57% of the year’s income tax, short of the more than 80% that would rule them out.

If you expect a smaller bill, you can ask HMRC to reduce the payments, but interest runs on the difference if the final figure comes out higher.

The guide on how to pay Self Assessment tax covers payment methods, and the full tax year dates calendar sits alongside it.

Register as a sole trader once income tops £1,000

Registration doesn’t have to come before your first job or sale. It becomes compulsory once the trade brings in more than £1,000 in a tax year, counted before any expenses come off.

That £1,000 is the trading allowance, and it’s a separate thing from the Personal Allowance. At £1,000 or less you may not need to tell HMRC, although some situations still call for registration, voluntary Class 2 among them.

Above £1,000, you can deduct a flat £1,000 in place of your actual expenses, but not both. The allowance isn’t available on income from your employer, or from a company or partnership that you or someone connected to you owns, controls or belongs to.

Other triggers are listed in the guide on whether you need to complete a tax return.

Tell HMRC by 5 October after the end of the tax year you started in. Start trading in June and that’s 5 October of the following year; start in March and it’s 5 October the same year.

Registering later, with tax still unpaid on 31 January, can bring a failure-to-notify penalty.

Registering for Self Assessment is how you register as a sole trader, and the online service is the main route. Starting a trade when you already file for other income still means registering again, this time as a sole trader, with form CWF1 as the fallback if the online form isn’t an option.

Once you’re registered, HMRC links your returns to you through a Unique Taxpayer Reference, and you’ll need it for every sole trader tax return. The UTR number guide covers how it’s issued.

Of all the business structures, this one asks least of you at set-up and in record-keeping. The catch is unlimited liability: every debt the business runs up is yours personally, just as whatever profit is left after tax is yours to keep.

The sole trader versus limited company pros and cons are laid out side by side on a separate page.

Turnover, not profit, triggers MTD and VAT

Two later thresholds look at income before expenses, so a business can cross them while its profit sits lower.

Making Tax Digital for Income Tax means keeping digital records and sending quarterly updates through compatible software, with a tax return still due after the year ends.

The test is qualifying income, which is your self-employment and property turnover combined, before expenses, and the threshold steps down in phases:

• Over £50,000 on a 2024/25 return, it applies from 6 April 2026.
• Over £30,000 on a 2025/26 return, it applies from 6 April 2027.
• Over £20,000 on a 2026/27 return, it applies from 6 April 2028.

Look at the £29,250 example again. Its £38,400 of turnover is over £30,000 even though the profit isn’t, so if those were its 2025/26 figures, Making Tax Digital would apply from 6 April 2027.

That group gets fuller treatment in the guide to Making Tax Digital for sole traders at £30,000.

VAT runs its own turnover test. Registration becomes compulsory when the last 12 months of taxable turnover add up to more than £90,000, the threshold since 1 April 2024, or when you expect taxable turnover to pass £90,000 within the next 30 days.

Crossing the line on the 12-month test gives you 30 days from the end of that month to register.

Zero-rated sales count towards that figure, while VAT-exempt and out-of-scope sales don’t. Below £90,000 you can register voluntarily and reclaim VAT on business expenses, and a business selling mostly zero-rated goods or services can apply to HMRC for an exemption from registration.

Both routes are set out in the sole trader VAT guide.

Your next step on sole trader tax

Sole trader tax comes down to one profit figure and two charges on it. Income tax follows the ordinary bands, or Scotland’s if you live there, and on 2026/27 figures Class 4 starts once profit passes £12,570, while Class 2 counts as paid from £7,105 of profit.

Your first January can hold the whole year’s bill plus an advance towards the next, and the online filing date is 31 January too. Registration is due once trading income tops £1,000, while turnover rather than profit decides when Making Tax Digital and VAT arrive.

Before the first deadline, check your own figures against the bands for your part of the UK, then read up on filing your first self-employed tax return.

Key takeaways on sole trader tax

• Allowable expenses come off your income first, and Class 4 National Insurance and income tax are then charged on the profit that’s left.
• In England, Wales and Northern Ireland, 2026/27 income between £12,570 and £50,270 is taxed at 20%, while Scottish taxpayers use six bands from 19% to 48% on most income other than savings and dividends.
• For 2026/27, Class 4 applies to profit over £12,570 at 6% up to £50,270 and 2% above, and Class 2 counts as paid once profit reaches £7,105.
• Payments on account can make the first 31 January bill one and a half times the year’s tax, with a second instalment due on 31 July.
• Registration is needed once trading income passes £1,000, and Making Tax Digital and VAT are tested on turnover too, not profit.