Key takeaways
- Sole traders pay Income Tax on profits (turnover minus expenses), not turnover.
- The Personal Allowance is £12,570 — you pay no Income Tax on profits up to this.
- Above the allowance: 20% (basic), 40% (higher), 45% (additional).
- National Insurance is on top: Class 2 (flat) and Class 4 (percentage of profits).
- Both Income Tax and NI are paid through Self Assessment in one bill.
How sole trader tax works
As a sole trader, you are self-employed and your business income is your personal income. You pay Income Tax on your profits — your total invoiced income minus your allowable business expenses — using the same tax bands as everyone else. On top of that, you pay self-employed National Insurance (Class 2 and Class 4).
Both are calculated by HMRC and collected through your Self Assessment tax return. There is no separate NI bill — it all comes as one.
Income Tax bands (2024-25)
Income Tax is charged on taxable profits (profits minus the Personal Allowance):
- Personal Allowance: £0 - £12,570 — 0% tax.
- Basic rate: £12,571 - £50,270 — 20%.
- Higher rate: £50,271 - £125,140 — 40%.
- Additional rate: over £125,140 — 45%.
The Personal Allowance is reduced by £1 for every £2 of income above £100,000, meaning it disappears entirely at £125,140.
National Insurance (2024-25)
On top of Income Tax, sole traders pay two classes of NI:
- Class 2 — approximately £3.45 per week if profits are above the small profits threshold (£6,715).
- Class 4 — 9% on profits between £12,570 and £50,270, plus 2% on profits above £50,270.
If your profits are below £12,570, you pay no Class 4. If below £6,715, Class 2 is voluntary.
An example: profits of £30,000
A sole trader with £30,000 in profits would pay approximately:
- Income Tax: 20% of (£30,000 - £12,570) = 20% of £17,430 = £3,486.
- Class 2 NI: £3.45 × 52 = £179.
- Class 4 NI: 9% of (£30,000 - £12,570) = 9% of £17,430 = £1,569.
- Total tax and NI: approximately £5,234.
The effective rate on £30,000 of profits is about 17.4% — Income Tax and NI combined, after the Personal Allowance.
How you pay
Both Income Tax and NI are paid through Self Assessment. You file a return by 31 January each year (for the tax year that ended the previous 5 April), and the bill includes: the tax and NI for the year just ended, plus your first payment on account (half of last year’s bill) towards next year. The second payment on account is due 31 July. If your tax bill is less than £3,000, or you pay enough through PAYE, you can opt to pay through your tax code instead.
Turnover vs profits
The most important distinction for sole traders: tax is on profits, not turnover. Turnover is the total of what you invoiced. Profits are turnover minus your allowable business expenses — equipment, travel, office costs, materials, professional fees. Keeping good expense records alongside your invoice records is what keeps your tax bill correct. Every legitimate expense you claim reduces your taxable profit, so track them all.
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Frequently asked questions
How much tax does a sole trader pay?
Income Tax on profits using the same bands as everyone else: 0% on the first £12,570 (Personal Allowance), 20% to £50,270, 40% to £125,140, 45% above. Plus National Insurance: Class 2 (about £179/year) and Class 4 (9% of profits between £12,570 and £50,270, 2% above).
Is sole trader tax on turnover or profits?
On profits. Profits are turnover (total invoiced) minus allowable business expenses. Keeping good expense records reduces your taxable profit and your tax bill.
What is the Personal Allowance for 2024-25?
£12,570. You pay no Income Tax on profits up to this amount. The allowance is reduced for incomes above £100,000 and disappears at £125,140.
When do sole traders pay tax?
Through Self Assessment: file by 31 January for the tax year ending the previous 5 April. The bill includes tax and NI for the year, plus a payment on account towards next year. A second payment on account is due 31 July.
What is a payment on account?
An advance payment towards next year’s tax, equal to half of this year’s bill. It spreads the cost but means your first Self Assessment bill can be higher than expected.
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General guidance only — not legal, tax or accounting advice. Rules and rates can change; check HMRC's current guidance for the latest. Last reviewed 8 October 2026.