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Freelance & Business · 2025/26 rates

Sole Trader Tax Calculator

Type your annual profit (after allowable expenses) to see your Self Assessment bill — Income Tax plus Class 4 National Insurance.

Your trading profit

£

Income from self-employment minus allowable expenses. Not your turnover.

Total tax + NI

£7,132

17.8% effective rate · £32,868 take-home

Self-Assessment breakdown

  • Gross profit
    £40,000
  • Income Tax
    −£5,486
  • Class 4 NI (6% / 2%)
    −£1,646
  • Net profit (take-home)
    £32,868

✓ Profits above the £6,725 Small Profits Threshold — you receive a Class 2 NI credit toward State Pension automatically.

How we calculated your result

Sole traders pay two things on their trading profit:

  • Income Tax at the standard 0% / 20% / 40% / 45% bands, with a Personal Allowance of £12,570 (tapered above £100k).
  • Class 4 National Insurance at 6% between £12,570 and £50,270, and 2% above. (Lower than the 8%/2% paid by employees on Class 1.)

Both are settled through Self Assessment by 31 January each year, plus a Payment on Account in July for the next year’s expected liability.

Official UK rules in simple English

The key thresholds for 2025/26:

  • Trading allowance: first £1,000 of gross trading income is tax-free with no need to register or file. Above £1,000 you must register for Self Assessment.
  • Small Profits Threshold (£6,725): below this you get no automatic NI credit toward State Pension. Voluntary Class 2 (£3.45/week) can fill the gap.
  • Class 4 NI: 6% main band, 2% upper band — same thresholds as Class 1 employee NI.
  • Class 2 NI is no longer compulsory from April 2024 — voluntary only.
  • Payment on Account: if your bill is over £1,000, HMRC asks for 50% of the next year’s estimated liability in January, and another 50% in July.

Common pitfalls to watch out for

  • ⚠ The first January is a triple bill

    In your first Self Assessment, you pay last year’s tax in full PLUS 50% Payment on Account for the new year — effectively 150% of last year. Set aside cash for it from day one.

  • ⚠ Allowable expenses are narrower than you think

    Mileage, home office, professional subscriptions, marketing, tools — yes. Entertainment, fines, your own salary (you can’t pay yourself), and most clothing — no. HMRC’s “wholly and exclusively” test is strict.

  • ⚠ Class 4 NI plus Class 1 can double-charge

    If you have a day job AND self-employment, you pay Class 1 NI on the day job and Class 4 NI on the side income — but HMRC will refund any overpayment above the annual NI maxima after Self Assessment.

  • ⚠ VAT registration at £90k turnover

    Once your 12-month rolling turnover hits £90k you must register for VAT — within 30 days. Many sole traders cross this threshold mid-year and only realise at tax time. Use the VAT calculator and Flat Rate Scheme tool to plan.

Frequently asked questions

Should I incorporate?
Tax-wise, the break-even is usually around £40–50k profit, depending on what you can extract as dividends. Below that, sole trader is usually simpler and cheaper. Above, a limited company often saves a few thousand a year — but adds compliance cost (Corporation Tax return, annual accounts, more paperwork).
What expenses can I claim?
Anything wholly and exclusively for the business: software subscriptions, office supplies, business travel (not commute), professional indemnity, accountancy, training that maintains existing skills (not new ones), and a proportion of home running costs if you work from home.
When do I need to register for Self Assessment?
By 5 October following the end of the tax year in which your trading income first exceeded £1,000. So if you started in June 2025, you have until 5 October 2026 to register. Tax is due 31 January 2027.

Doesn't include VAT, pension contributions, student loan, Class 2 voluntary, or interaction with employment income. For full Self Assessment guidance, see HMRC’s helpsheets.

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