How Much Tax Will I Pay as a Sole Trader? UK Tax Rates Explained for 2025/26
By The QuarterlyUK Team · 13 March 2026
“How much tax will I actually pay?” It's the question every self-employed person in the UK asks — and the answer is almost never straightforward. Your tax bill depends on your taxable profit (not your turnover), how much falls into each tax band, and whether you get caught by any of HMRC's less obvious traps.
This guide breaks down exactly how income tax and National Insurance work for sole traders in the 2025/26 tax year (6 April 2025 to 5 April 2026). We'll walk through the rates, explain the personal allowance taper that catches people out, and show you three worked examples so you can see real numbers.
Want a quick answer? Try our free sole trader tax calculator to see your estimated bill in seconds.
Income tax rates for sole traders 2025/26
As a sole trader, you pay income tax on your taxable profit — that's your total income minus allowable business expenses. The rates are the same as for employed workers. Here are the bands for 2025/26:
| Band | Taxable Profit | 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% |
These bands apply to your total taxable income from all sources, not just your self-employment. If you also have a PAYE salary, that uses up part of your allowance and bands first.
The £100k personal allowance trap
This is the one that catches people off guard. If your total income exceeds £100,000, you start losing your £12,570 personal allowance. For every £2 you earn above £100,000, you lose £1 of your tax-free allowance.
The maths works out brutally. On income between £100,000 and £125,140, you're paying the 40% higher rate plus effectively losing 20% on the allowance you're forfeiting. That creates an effective marginal tax rate of 60% in this band.
At £125,140, your personal allowance is completely gone. Above that, you're back to the standard 40% (and then 45% above £125,140 for the additional rate). The 60% effective rate only applies in that narrow £100,000 to £125,140 window — but if your profit lands there, it stings.
This is one of the strongest reasons for sole traders earning around £100k to make pension contributions. A £10,000 pension contribution brings your taxable profit below £100,000, restoring your full personal allowance and saving you far more than the standard 40% relief.
National Insurance for sole traders 2025/26
On top of income tax, sole traders pay National Insurance Contributions (NICs). There are two classes to know about:
Class 2 NICs
Class 2 NICs are now effectively free. Since April 2024, sole traders with profits above the Small Profits Threshold (£6,725) get their Class 2 NIC credits automatically — without paying anything. These credits count towards your State Pension entitlement. You don't need to do anything; HMRC handles it.
Class 4 NICs
Class 4 is where the real cost is. You pay it on your taxable profits alongside your Self Assessment tax bill:
| Profit Band | Class 4 NIC Rate |
|---|---|
| Up to £12,570 | 0% |
| £12,570 – £50,270 | 6% |
| Over £50,270 | 2% |
Notice that the Class 4 thresholds mirror the income tax bands. The Lower Profits Limit matches the personal allowance at £12,570, and the Upper Profits Limit matches the higher rate threshold at £50,270.
Worked examples: how much will you actually pay?
Let's run through three real scenarios. These assume self-employment is your only source of income and you have no other tax reliefs or allowances beyond the personal allowance.
Example 1: £30,000 profit (typical tradesperson)
| Item | Amount |
|---|---|
| Taxable profit | £30,000 |
| Personal Allowance | £12,570 at 0% = £0 |
| Basic rate income tax | £17,430 at 20% = £3,486 |
| Total income tax | £3,486 |
| Class 4 NIC (6% on £17,430) | £1,046 |
| Class 2 NIC | £0 (auto-credited) |
| Total tax + NIC | £4,532 |
| Effective tax rate | 15.1% |
| Take-home pay | £25,468 |
Example 2: £55,000 profit (crosses into higher rate)
| Item | Amount |
|---|---|
| Taxable profit | £55,000 |
| Personal Allowance | £12,570 at 0% = £0 |
| Basic rate income tax | £37,700 at 20% = £7,540 |
| Higher rate income tax | £4,730 at 40% = £1,892 |
| Total income tax | £9,432 |
| Class 4 NIC (6% on £37,700) | £2,262 |
| Class 4 NIC (2% on £4,730) | £95 |
| Class 2 NIC | £0 (auto-credited) |
| Total tax + NIC | £11,789 |
| Effective tax rate | 21.4% |
| Take-home pay | £43,211 |
Example 3: £110,000 profit (personal allowance taper kicks in)
This is where the £100k trap bites. With £110,000 profit, you're £10,000 over the £100,000 threshold, so you lose £5,000 of your personal allowance. Your remaining personal allowance is £7,570.
| Item | Amount |
|---|---|
| Taxable profit | £110,000 |
| Personal Allowance (reduced) | £7,570 at 0% = £0 |
| Basic rate income tax | £42,700 at 20% = £8,540 |
| Higher rate income tax | £59,730 at 40% = £23,892 |
| Total income tax | £32,432 |
| Class 4 NIC (6% on £37,700) | £2,262 |
| Class 4 NIC (2% on £59,730) | £1,195 |
| Class 2 NIC | £0 (auto-credited) |
| Total tax + NIC | £35,889 |
| Effective tax rate | 32.6% |
| Take-home pay | £74,111 |
Compare that effective rate of 32.6% with the 21.4% at £55,000. The personal allowance taper adds roughly £2,000 in extra tax that you wouldn't pay if the taper didn't exist. That £5,000 of lost allowance is taxed at 40%, costing you an extra £2,000 on top of the standard higher rate bill.
How to reduce your sole trader tax bill
You can't change the tax rates, but you can make sure you're not paying more than you owe. Here are the main levers:
Track every allowable expense
Every legitimate business expense reduces your taxable profit. If you're a basic rate taxpayer, a £100 expense saves you £26 (20% income tax + 6% Class 4 NIC). At the higher rate, it saves £42. Common expenses sole traders miss include:
- Use of home as office (simplified expenses or actual costs)
- Business mileage
- Phone and internet (business proportion)
- Professional subscriptions and insurance
- Software and tools
- Training directly related to your trade
HMRC groups expenses into 14 standard categories. Make sure you know what falls into each.
Pension contributions
Contributions to a personal pension reduce your taxable profit. This is especially powerful if you're near the £100,000 threshold. A £10,000 pension contribution could save you £6,000 in tax if it brings you back below £100k and restores your personal allowance.
Keep digital records from day one
Good records mean you claim everything you're entitled to, and you have the evidence if HMRC asks questions. Use the QuarterlyUK dashboard to log income and expenses as they happen, rather than scrambling at year-end.
Making Tax Digital: what's changing from April 2026
From April 2026, sole traders and landlords with income over £50,000 must keep digital records and submit quarterly updates to HMRC under Making Tax Digital for Income Tax. This threshold drops to £30,000 from April 2027.
If you're in either worked example 2 or 3 above, MTD applies to you from next month. You'll need compatible software to keep your records and submit quarterly summaries to HMRC. The days of the shoebox-full-of-receipts approach are numbered.
Work out your exact tax bill
The examples above cover common scenarios, but your situation might be different. Use our free sole trader tax calculator to enter your actual profit and see a full breakdown of income tax, National Insurance, and take-home pay for 2025/26.
If you're looking for a simple, affordable way to track your income and expenses throughout the year, QuarterlyUK starts at £2.50/month with no introductory pricing tricks. The price you see is the price you pay.