How Much Tax Do I Pay as a UK Sole Trader?
As a sole trader, you pay two types of tax on your profits: Income Tax and National Insurance. Your profit is your total income minus allowable business expenses. The more expenses you claim, the less tax you pay.
2026/27 Tax Calculator
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Income Tax Bands 2026/27
| Band | Taxable Income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Personal Allowance taper: If your profit exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 above £100,000. At £125,140, it reaches zero.
National Insurance
Sole traders pay two classes of National Insurance:
- Class 2: £3.45 per week (£179.40/year) if profits are above £12,570
- Class 4: 6% on profits between £12,570 and £50,270, plus 2% on profits above £50,270
Worked Example
Scenario: You earn £45,000 and have £8,000 in expenses. Your taxable profit is £37,000.
Income Tax: £37,000 − £12,570 = £24,430 taxable at 20% = £4,886
Class 2 NI: £3.45 × 52 = £179.40
Class 4 NI: (£37,000 − £12,570) × 6% = £1,465.80
Total tax: £4,886 + £179.40 + £1,465.80 = £6,531.20
Take-home: £37,000 − £6,531.20 = £30,468.80 (effective rate: 17.7%)
How Expenses Reduce Your Tax
Every £1 of allowable expenses saves you between 20p and 40p in tax, depending on your rate. Common expenses sole traders miss:
- Working from home: Flat rate £10–£26/month or proportional method
- Mileage: 45p/mile for first 10,000 business miles (use our calculator)
- Phone & internet: Business proportion of your personal bill
- Software: Accounting tools, cloud storage, design apps
- Professional fees: Accountant, insurance, trade memberships
See our complete expenses list for everything you can claim.
Payment on Account
If your tax bill exceeds £1,000, HMRC requires payments on account — two advance payments towards next year's bill:
- 31 January: First payment (50% of previous year's bill) + any remaining balance
- 31 July: Second payment (another 50%)
This means your first year of self-employment can feel expensive — you're paying this year's bill plus half of next year's estimated bill at the same time.
Tips to Reduce Your Tax Legally
- Claim every expense: Track receipts throughout the year, not just at tax time
- Use simplified expenses: HMRC flat rates for mileage and working from home save time and often save money
- Pension contributions: Reduce your taxable profit and save for retirement
- Timing: Bring forward expenses or defer income near the tax year boundary (5 April) to stay in a lower band
- Capital allowances: Claim for equipment, vehicles, and machinery over £1,000
Related guides: Every expense you can claim · HMRC mileage rates · Making Tax Digital 2026 · Self Assessment deadlines
Track expenses to reduce your tax bill
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