Self-Employed Tax UK: How Much Tax Do Sole Traders Pay?
Going self-employed in the UK means handling your own tax. This guide explains how much tax sole traders pay, how income tax and National Insurance work on your profits, and how to budget for your Self Assessment bill — with worked examples.
Becoming self-employed is liberating — until the first tax bill arrives. Understanding self-employed tax in the UK before you get there means no nasty surprises and no scrambling to find money you've already spent. This guide explains exactly how much tax sole traders pay, how income tax and National Insurance apply to your profits, and how to set money aside, with worked examples for the 2025/26 tax year.
To estimate your own bill in seconds, use our UK Self-Employed Tax Calculator. Below, we explain how the numbers are built.
How self-employed tax in the UK works
As a sole trader, you're taxed on your profit — that's your income minus allowable business expenses — not your total turnover. You report this through Self Assessment once a year, and you pay two things on your profit: income tax and National Insurance.
The crucial difference from employment is that no tax is deducted at source. Every invoice you're paid arrives in full, and it's your job to set aside the tax portion. Spend it all and you'll be caught short when the bill lands.
Income tax for the self-employed
Self-employed income tax uses the same bands as employment. For 2025/26 in England, Wales and Northern Ireland:
| Band | Profit | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
These are the same bands we cover in detail in our guide to UK income tax rates and bands. The difference is simply that you pay on profit rather than salary.
National Insurance for the self-employed
Self-employed people pay Class 4 National Insurance on their profits: around 6% between the lower and upper profit limits (roughly £12,570 to £50,270), and 2% on profits above that. This is separate from, and lower than, the Class 1 NI that employees pay. We explain the difference between the classes in our guide to what National Insurance is.
Worked example: tax on £40,000 profit
Say you make £40,000 profit as a sole trader in 2025/26:
- Income tax: £40,000 − £12,570 allowance = £27,430 taxed at 20% = £5,486
- Class 4 NI: roughly £27,430 × 6% = £1,646
Total to set aside = about £7,132, leaving take-home of roughly £32,868. As a rough rule, setting aside 25–30% of your profit covers most sole traders comfortably at this level.
Allowable expenses reduce your tax
Because you're taxed on profit, legitimate business expenses directly cut your tax bill. Common allowable expenses include:
- Office costs, software and stationery
- Travel and mileage for business journeys
- A proportion of home costs if you work from home
- Professional fees, insurance and marketing
Keeping accurate records all year makes Self Assessment far easier — and ensures you don't overpay by forgetting expenses.
When do you pay?
Self Assessment for a tax year is due by 31 January after the tax year ends. Many sole traders also make payments on account — advance instalments towards the next year's bill — which can double your first January payment. Budgeting for this is essential, and we cover it fully in our companion guide on payments on account.
Frequently asked questions
How much tax do I pay if I'm self-employed in the UK?
You pay income tax and Class 4 National Insurance on your profit. On £40,000 profit for 2025/26, that's roughly £5,486 income tax plus about £1,646 NI — around £7,132 in total.
How much should I set aside for tax as a sole trader?
A safe rule of thumb is 25–30% of your profit for most sole traders. Higher earners crossing into the 40% band should set aside more. Put it in a separate savings account so it's not accidentally spent.
Do the self-employed get a personal allowance?
Yes. Sole traders get the same £12,570 personal allowance as employees, so the first £12,570 of profit is free of income tax in 2025/26.
What National Insurance do the self-employed pay?
Sole traders pay Class 4 NI at around 6% on profits between the lower and upper limits and 2% above. This is separate from the Class 1 NI paid by employees.
When is my self-employed tax due?
Your Self Assessment bill is due by 31 January following the end of the tax year. You may also make payments on account — advance instalments towards the next year's tax.
This article was last reviewed for the 2025/26 tax year. Figures are for guidance only — always verify with HMRC or a qualified accountant.