How Much Tax does a Sole Trader Pay in the UK?

Looking at your hard-earned income and wondering, 'How much of this do I actually get to keep?'? This guide sheds light on this common dilemma by explaining what types of tax UK sole traders pay, how to calculate your tax as a sole trader, when the taxes are due, and what caveats to keep in mind.

We also explain how you can manage your business income and expenses optimally to make tax calculations a breeze using Wise Business - the account trusted by sole traders across the UK to assist bookkeeping, make payments in 40+ currencies without any hidden fees, and more.

What is a sole trader?

Sole traders are self-employed people who run a business on their own without setting up a company. They make all of the business decisions, are personally liable for business debts¹, and pay taxes in a very similar way to people who are employed (with a handful of key differences).

How much Income Tax do sole traders pay?

Income Tax is owed on a sole trader’s taxable profits, which are calculated by subtracting business expenses from business income within the tax year.

These expenses are the ‘running costs’ that HMRC allows sole traders to deduct from their income to work out their taxable profit²⁰.

For example: Phil, a sole trader based in Wolverhampton running a physical signage business, makes £45,000 in total income within one tax year. He spends £15,000 on paint, logistics, and other business costs, which he claims as business expenses.

What does Phil owe Income Tax on? Phil owes tax on his profit. The calculator is: Income - Expenses = Taxable Profit. In Phil’s case, that’s £45,000 - £15,000 = £30,000.

Sole Traders get a Personal Allowance of £12,570² just like an employee would at a company.

This amount is tax-free, meaning you do not have to pay any tax on this part of your taxable profit as a sole trader².

However, you do owe tax on any taxable profit that exceeds this amount. The amount you owe depends on the HMRC’s Income Tax bands².

The Income Tax bands for all of the UK (other than Scotland) are:

Band	**Taxable income **	Tax rate
Personal Allowance	Up to £12,5702	0%2
Basic rate	£12,571 to £50,2702	20%2
Higher rate	£50,271 to £125,1402	40%2
Additional rate	Over £125,1402	45%2

How much tax does Phil owe from the previous example?

Phil’s taxable profit is £30,000. Therefore, he pays 0% tax on the first £12,570, which leaves £30,000 - £12,570 = £17,430. On this amount, Phil pays 20% tax.

The calculation:- First £12,570 at 0% = £0

• Next £17,430 (30,000 − 12,570) at 20% = £3,486
• Total Income Tax owed = £3,486

It's important to note that if you live in Scotland, the Income Tax bands are different:

Band	**Taxable income **	Tax rate
Personal Allowance	Up to £12,5705	0%5
Starter rate	£12,571 to £15,3975	19%5
Basic rate	£15,398 to £27,4915	20%5
Intermediate rate	£27,492 to £43,6625	21%5
Higher rate	£43,663 to £75,0005	42%5
Advanced rate	£75,001 to £125,1405	45%5
Top rate	Over £125,1405	48%5

What is the Trading Allowance and how does it affect how much tax you owe as a sole trader?

The Trading Allowance is a £1,000 allowance given to sole traders by HMRC³.

Sole traders who earn more than £1,000 in a tax year can choose to deduct this £1,000 Trading Allowance from their business income to reduce their taxable profit instead of deducting business expenses.

In other words, you can choose between these options:

1. Calculate your taxable profit by subtracting your business expenses from your business income

1. Calculate your taxable profit by subtracting the Trading Allowance from your business income⁴

Depending on how much your business expenses are, the second option can be more tax-efficient for you as a sole trader.

How much National Insurance do sole traders pay?

As a sole trader, you must make National Insurance contributions (NICs) once you’ve passed the National Insurance threshold⁷.

For self-employed individuals, NICs are categorised as:

• Class 2: If your profits are over £6,845, then you do not pay Class 2 NICs as a self-employed sole trader. Your contributions are automatically treated as paid, so you still build up your entitlement to the State Pension and other benefits. However, if your profits are below £6,845, then you can choose to make voluntary Class 2 contributions (£3.50 per week) to ensure you don't have gaps in your National Insurance record.

• Class 4: You owe 6% on any profits between £12,570 and £50,270, as well as an additional 2% for profits above £50,270⁷.

Other taxes and fees

As a sole trader in the UK, you may also be subject to other taxes such as:

• VAT - if your total taxable turnover for the last 12 months goes over £90,000 (the  VAT  threshold) or you expect your taxable turnover to go over £90,000 in the next 30 days⁸.

• Capital Gains Tax - a tax on the profit when you sell an asset that’s increased in value⁹.

How do deductions affect how much tax sole traders pay in the UK?

Allowable expenses, simplified expenses, and capital allowances are business-related costs that can be claimed as tax deductions. These deductions can significantly reduce income taxes for UK sole traders.

Allowable expenses

Sole traders in the UK can claim business-related purchases, such as office costs⁹, travel expenses¹⁰, clothing expenses¹¹, marketing and advertising¹², training courses¹³, and legal and financial costs¹⁴.

However, expenses on your speeding tickets and gym membership cannot be claimed for tax deduction.

Simplified expenses

The HMRC allows sole traders to calculate some business-related expenses using flat rates, rather than having to work out their actual expenses¹⁵.

Flat rates can be used to calculate business expenses, vehicle expenses, work-from-home expenses, and expenses related to residing in your business premises.

You can use the simplified expenses checker to determine what you can claim¹⁶.

Capital allowances

Sole traders can enjoy tax deductibles when they purchase equipment, machinery, and business vehicles¹⁷.

Sole traders can claim capital allowances on their Self Assessment tax return¹⁸. The amount they can claim is deducted from their profits¹⁹.

What is the sole trader tax return deadline in the UK?

As a sole trader, if you need to file a tax return for the last tax year and you’ve never filed one, you would need to register for Self Assessment on HMRC by 5 October 2025¹⁹.

However, if you are registering for Self Assessment after 5 October 2025, HMRC will send you a letter or email giving you a new filing deadline¹⁹. This is usually 3 months from the date of the letter/email you are sent¹⁹.

You need to pay your Self Assessment tax by 11:59 pm on 31 January 2026 or you’ll get a penalty¹⁸.

There is a second payment deadline of 31 July if you make payments towards your bill - these are known as payments on account¹⁹.

Note: The deadline for earlier tax returns has passed, and you may have to pay a penalty. The last tax year started on 6 April 2024 and ended on 5 April 2025¹⁹.

How to file taxes as a sole trader in the UK

There are two ways to file your tax return: filing on paper and filing online:

1. If you are filing on paper, HMRC must receive your paper tax return²¹ by 11:59 pm on 31 October 2025, or you’ll get a late filing penalty¹⁹.

1. If you are filing online, you need to submit your online tax return by 11:59 pm on 31 January 2026, or you’ll get a late filing penalty¹⁹. If you want to pay your Self Assessment bill through your tax code, you must submit it by 11:59 pm on 30 December 2025. If you miss this deadline, you’ll have to pay another way¹⁹.

Simplify your tax calculations with Wise Business

No matter what business you’re in, the way you handle payments and tax compliance is integral to running your business successfully. That’s where Wise Business comes in.

Wise Business helps sole traders get paid quickly from clients in 40+ currencies, without losing a chunk of their earnings to high fees.

You can also separate business and personal finances using Wise Business. You’ll have all your business transactions in one place, making it easier to calculate your taxes.

With a single Wise Business account, you’ll receive local account details in 8+ currencies, making it easy for clients to pay you in their own currency.

Plus, you can manage 40+ currencies from one account and convert funds at low fees using the mid-market exchange rate.

Get started with Wise Business 🚀

Sources:

1. Become a Sole Trader - GOV.UK
2. Income Tax rates and Personal Allowances - GOV.UK
3. Income Tax: introduction: Overview - GOV.UK
4. Income tax relief on maintenance payments - GOV.UK
5. Income Tax in Scotland: Current rates - GOV.UK
6. National Insurance: introduction: Overview - GOV.UK
7. Self-employed National Insurance rates - GOV.UK
8. When to register for VAT - GOV.UK
9. Expenses if you're self-employed: Office, property and equipment - GOV.UK
10. Expenses if you're self-employed: Car, van and travel expenses - GOV.UK
11. Expenses if you're self-employed: Clothing expenses - GOV.UK
12. Expenses if you're self-employed: Marketing, entertainment and subscriptions - GOV.UK
13. Expenses if you're self-employed: Training courses - GOV.UK
14. Expenses if you're self-employed: Legal and financial costs - GOV.UK
15. Simplified expenses if you're self-employed: Overview - GOV.UK
16. Check if simplified expenses could save your business money - GOV.UK
17. Claim capital allowances: Overview - GOV.UK
18. Claim capital allowances: How to claim - GOV.UK
19. Self Assessment tax returns: Deadlines - GOV.UK
20. Expenses if you're self-employed - GOV.UK
21. Self Assessment tax return forms - GOV.UK

Sources last checked on September 19th, 2025

Wise is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011, Firm Reference 900507, for the issuing of electronic money.