How Much Tax Does a Sole Trader Pay in the UK?
As a sole trader, you do not pay tax on your total sales or turnover. Instead, you only pay tax on your business profits (your total sales minus your allowable business expenses).
Income Tax Bands and Rates
Everyone gets a Personal Allowance of £12,570. This portion of your profit is completely tax-free. Any profit you make above this is taxed in bands:
- Basic Rate (20%): Charged on taxable profits between £12,571 and £50,270.
- Higher Rate (40%): Charged on taxable profits between £50,271 and £125,140.
- Additional Rate (45%): Charged on profits over £125,140.
National Insurance Contributions
On top of Income Tax, sole traders pay Class 4 National Insurance. For the 2026/27 tax year, this is 6% on profits between £12,570 and £50,270. If you earn more than that, you pay 2% on the remaining profit. Note that Class 2 National Insurance has been completely abolished for mandatory payments.
A Quick Tax Example
If your annual profit is £40,000, your tax-free Personal Allowance covers the first £12,570. You pay 20% Income Tax and 6% Class 4 National Insurance on the remaining £27,430. This works out to £5,486 in Income Tax and £1,645 in National Insurance, making your total tax bill £7,131.
To see how this affects your take-home pay, try our easy Sole Trader Tax Calculator.