How sole trader tax is worked out
As a sole trader you and your business are the same legal person for tax, so you pay income tax and National Insurance on your profits through Self Assessment. Profit is your income minus allowable business expenses — the calculator assumes you've already netted those off.
Two taxes stack up:
- Income tax — nothing on the first £12,570, then 20% up to £50,270, 40% up to £125,140 and 45% above. Scotland uses its own six-band system, which the calculator applies when you pick it.
- Class 4 National Insurance — 6% on profits between £12,570 and £50,270, then 2% on anything above. This is UK-wide, including Scotland.
Payments on account Your first Self Assessment bill often comes with a nasty surprise: HMRC asks for the tax plus a 50% payment towards next year, then another 50% in July. Budget for it so January doesn't sting.
Cutting the bill, legitimately
Claim every allowable expense (home-office costs, mileage, equipment, software, professional fees), consider whether the cash basis suits you, and pay into a pension for tax relief. Once profits climb, it may be worth comparing the sole trader route against a limited company — try our sole trader vs limited company calculator.
