- Sole traders pay income tax plus Class 4 National Insurance via self assessment.
- The 2026/27 personal allowance is £12,570, with 20% tax starting above it.
- Your first January bill includes the first payment on account for next year.
Sole trader tax is income tax on your business profit at the same bands as employment income, plus Class 4 National Insurance, all reported through a self assessment tax return service. There’s no separate business tax and no corporation tax to worry about. This guide covers what you pay, the 2026/27 rates, how payments on account work, the deadlines that matter, and when going limited starts to look cheaper.
How much tax does a sole trader pay?
A sole trader pays income tax and Class 4 National Insurance on business profit, worked out once a year through self assessment. You’re taxed on profit, not on everything the business takes in, and the rates are the standard income tax bands that apply to any income.
There’s no corporation tax and no PAYE on your own drawings. What you take out of the business isn’t a salary in the tax sense, so the whole profit is taxed whether you spend it or leave it in the account.
How is your taxable profit worked out?
Your taxable profit is your business income minus your allowable business costs. HMRC taxes that figure, so getting your costs right directly changes what you owe. You can read our guide to allowable expenses for sole traders for what counts.
If your gross trading income is £1,000 or less across the year, the trading allowance usually means you don’t need to register or file at all. Above that, profit is what everything else on this page is calculated from.
What are the income tax bands for sole traders?
For 2026/27 the sole trader tax rates match the employed income tax bands. The personal allowance is £12,570 and is frozen until April 2031, so more profit falls into tax each year as earnings rise.
The sole trader tax brackets in England, Wales and Northern Ireland for 2026/27 are:
- Personal allowance: £0 to £12,570, taxed at 0%
- Basic rate: £12,571 to £50,270, taxed at 20%
- Higher rate: £50,271 to £125,140, taxed at 40%
- Additional rate: above £125,140, taxed at 45%
One thing to watch: once profit passes £100,000 your personal allowance tapers away by £1 for every £2 over, which creates an effective 60% band up to £125,140. Scotland sets its own income tax rates with more bands, so a Scottish sole trader’s tax rate differs from the figures above, though National Insurance is the same UK-wide.
How much National Insurance do sole traders pay?
On top of income tax, sole traders pay Class 4 National Insurance on profit. For 2026/27 that’s 6% on profit between £12,570 and £50,270, then 2% on anything above £50,270. It’s collected through self assessment alongside your income tax, not separately.
Class 2 National Insurance used to be a flat weekly charge, but compulsory Class 2 ended in April 2024. Now, if your profit is at or above the £7,105 small profits threshold, Class 2 is treated as paid and you get a qualifying year towards your State Pension without paying anything. If your profit is below £7,105, you can pay voluntary Class 2 at £3.65 a week to protect that pension year.
What does sole trader tax look like on £50,000 of profit?
Here’s a worked example carried through the rest of this guide: a sole trader with £50,000 of profit in 2026/27, based in England.
| Sole trader tax on £50,000 profit (2026/27) | Amount |
|---|---|
| Taxable profit after £12,570 allowance | £37,430 |
| Income tax (20% on £37,430) | £7,486.00 |
| Class 4 NI (6% on £37,430) | £2,245.80 |
| Class 2 NI (profit above £7,105) | £0.00 |
| Total tax for the year | £9,731.80 |
| First payment on account (50%) | £4,865.90 |
| First January bill (tax + first payment on account) | £14,597.70 |
All £37,430 of taxable profit sits in the basic rate band, so nothing is taxed at 40% here. The total tax for the year is £9,731.80. The reason the January bill is bigger is the payment on account, which the next section explains.
What are payments on account, and why is January bigger than you expect?
Payments on account are advance payments towards your next tax bill. They kick in when your last self assessment bill was over £1,000 and less than 80% of your tax was already collected at source, which is most full-time sole traders.
You make two payments, each 50% of last year’s income tax and Class 4 NI, due on 31 January and 31 July. In your first profitable year this stings, because the 31 January bill is the whole year’s tax plus the first payment on account on top, roughly 150% of the year’s tax in one go. In our example that’s £14,597.70 in January, then £4,865.90 in July.
If your income is lower this year than last, you can apply to reduce your payments on account, though you’ll pay interest if you reduce them too far. This is exactly the kind of forecasting where an accountant for sole traders earns their fee, by making sure January doesn’t catch you out.
What are the sole trader tax deadlines?
The sole trader tax year runs to 5 April, and the key dates flow from there. Miss the registration date and you can still file, but leave it too long and penalties start, which the next section covers.
- Register for self assessment: by 5 October after the end of the tax year you started trading
- Paper return deadline: 31 October
- Online return deadline: 31 January
- Balancing payment plus first payment on account: 31 January
- Second payment on account: 31 July
So for the 2025/26 tax year, you register by 5 October 2026 and file your self assessment online by 31 January 2027. From 6 April 2026, Making Tax Digital for Income Tax also applies to sole traders with qualifying income above £50,000, who now keep digital records and send quarterly updates. That threshold drops to £30,000 in April 2027 and £20,000 in April 2028.
What happens if you file or pay late?
Filing late triggers an automatic £100 penalty the day after the deadline, even if you owe no tax. After three months it’s £10 a day up to £900, and at six and twelve months you’re charged 5% of the tax due or £300, whichever is greater, each time.
Paying late is charged separately. You’re hit with 5% of the unpaid tax at 30 days, six months and twelve months, plus interest running at 4% above the Bank of England base rate from the due date. The penalties stack, so a late return with late payment gets expensive fast.
Can a sole trader employ someone and run PAYE?
Yes. Being a sole trader describes how you’re taxed on your own profit, not whether you can hire. You can take on staff and, once you do, you register as an employer and run PAYE on their wages.
That means deducting income tax and National Insurance from employees’ pay and sending it to HMRC, plus paying employer’s National Insurance on top. Your own tax stays on self assessment, and their tax runs through PAYE. See our guide to employing people as a sole trader for how the two systems sit side by side.
When does being a sole trader stop being the cheaper option?
At lower profits, sole trader tax is usually simpler and no more expensive than a limited company. As profit grows, the flat 40% higher rate on personal income starts to look heavy next to corporation tax plus dividends, and that’s often the tipping point.
There’s no single profit figure that fits everyone, because it depends on how much you draw, pension contributions and other income. Our guide on how the tax compares with a limited company runs the numbers. Growth also brings VAT into view: once turnover nears the threshold you’ll be registering for VAT as a sole trader, which changes your pricing and admin regardless of structure.
How Sleek helps with sole trader tax
Sole trader tax is predictable once someone’s forecasting your January bill and keeping every deadline in view. That’s the difference between a return that’s filed and a return that’s right.
Sleek pairs software that does the heavy lifting with an accountant who checks the numbers, so you can see exactly where your bill comes from before it’s due. No missed deadlines, no January surprise, and a clear view of what you owe all year.
FAQs on sole trader tax
Do I pay National Insurance if I also have an employed job?
Yes. Your employed job deducts Class 1 National Insurance through PAYE, and your self-employed profit is charged Class 4 through self assessment. HMRC can cap the total across both if you’re paying a lot, but you don’t opt out of one because of the other.
Can I reduce my payments on account?
You can if you expect this year’s profit to be lower than last year’s. You apply through your self assessment account to lower both instalments, but if you reduce them below what you actually owe, HMRC charges interest on the shortfall.
Do I need to register for VAT as a sole trader?
Only once your VAT-taxable turnover goes over the £90,000 registration threshold in any rolling 12-month period, or you expect to cross it within 30 days. Below that it’s optional, and some sole traders register voluntarily to reclaim VAT on costs.
What happens if I earn under the £1,000 trading allowance?
If your gross trading income is £1,000 or less in the tax year, the trading allowance usually means you don’t need to register for self assessment or pay tax on it. Once you go over £1,000, you register and the allowance can still be claimed against your income instead of your actual costs.
Does a Sleek package include my personal tax return?
Yes, sole trader accounting with Sleek covers preparing and filing your self assessment return, so your personal tax and your business figures are handled together rather than as two separate jobs.
More tax return and company tax questions are answered in our FAQ hub.
