Answers · UK 2025/26

How much tax does a sole trader pay in 2026?

A sole trader pays Income Tax at 20/40/45% on profits above the £12,570 Personal Allowance, plus Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above. On £40,000 profit that is about £5,486 Income Tax and £1,646 Class 4 NI.

Last updated: 1 June 2026Last reviewed: 1 June 2026How we verify

Full answer

Sole traders pay tax on business profits (income minus allowable expenses), not turnover. For 2026/27 the rates are: Income Tax at 20% on profits between £12,570 and £50,270, 40% to £125,140, and 45% above. National Insurance for the self-employed is Class 4 at 6% on profits from £12,570 to £50,270 and 2% above; Class 2 is effectively no longer charged for most, though it can be paid voluntarily to protect State Pension entitlement. Worked example: a sole trader with £40,000 profit. Income Tax = (£40,000 − £12,570) × 20% = £5,486. Class 4 NI = (£40,000 − £12,570) × 6% = £1,646. Total tax £7,132, leaving £32,868. Tax is paid through Self Assessment, usually with two payments on account towards the next year. In Scotland the Scottish Income Tax bands (19% to 48%) apply to the trading profit, while Class 4 NI is UK-wide. Sole traders must register for VAT once turnover exceeds £90,000. Compared with a limited company (corporation tax 19/25% plus dividend tax), incorporation can be more efficient at higher profits. Use the Self-Employed Tax calculator to estimate your bill.