How much tax will you pay as a sole trader?
Does MTD apply to you yet?A UK sole trader pays two things on their profit: Income Tax and Class 4 National Insurance. Both are worked out on profit, meaning income minus allowable expenses, not on everything you invoice. For the 2026 to 2027 tax year the first £12,570 is covered by the Personal Allowance, and the two charges build from there.
The two taxes you pay
Income Tax is charged in bands: nothing on the first £12,570, then 20%, 40% and 45% slices as profit rises. Class 4 National Insurance runs alongside it: 6% on profits between £12,570 and £50,270, then 2% above that. There's nothing separate to arrange, both are collected through the same Self Assessment bill.
Class 2 National Insurance mostly looks after itself now: with profits of £7,105 or more it's treated as paid, so your State Pension record is protected without a bill.
The 2026-27 bands (England, Wales and Northern Ireland)
| Band | Profit | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Plus Class 4 National Insurance: 6% from £12,570 to £50,270, 2% above. One wrinkle at the top: past £100,000 of income the Personal Allowance shrinks by £1 for every £2, disappearing entirely at £125,140.
A worked example: £40,000 profit
| Charge | Working | Amount |
|---|---|---|
| Income Tax | £27,430 at 20% | £5,486.00 |
| Class 4 NI | £27,430 at 6% | £1,645.80 |
| Total | £7,131.80 |
Just under 18p of every pound of profit. Not the 30% horror stories, but enough that finding out in January, with none of it put aside, hurts.
If you live in Scotland
Scotland sets its own Income Tax bands, and they apply to your trading profit if you live there:
| Band | Profit | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter rate | £12,571 to £16,537 | 19% |
| Basic rate | £16,538 to £29,526 | 20% |
| Intermediate rate | £29,527 to £43,662 | 21% |
| Higher rate | £43,663 to £75,000 | 42% |
| Advanced rate | £75,001 to £125,140 | 45% |
| Top rate | Over £125,140 | 48% |
National Insurance is not devolved, so Class 4 works the same UK-wide. The same £40,000 profit in Scotland comes to £5,551.07 of Income Tax plus £1,645.80 of Class 4: £7,196.87, about £65 more than south of the border. Most tax tools quietly ignore Scotland's bands; SoleTax doesn't.
When you pay
Through Self Assessment, by 31 January following the end of the tax year. And once your bill passes £1,000, HMRC also asks for advance instalments towards the next year, which makes the first January famously bigger than expected. That's payments on account, worth understanding before it happens to you.
Quick answers
Do I pay tax on turnover or profit?
Profit. Income minus allowable expenses is what Income Tax and Class 4 National Insurance are worked out on. This is why claiming every legitimate expense matters.
What about my State Pension?
With profits of £7,105 or more, Class 2 National Insurance is treated as paid, protecting your record without you paying anything. Below that you can pay £3.65 a week voluntarily.
What about student loans?
Repayments are worked out from your Self Assessment return and added to the bill. The rate and threshold depend on your plan.
How much should I put aside?
It depends on your profit and where you live: the £40,000 example above works out just under 18p in the pound overall. SoleTax works out your own number as you earn, so you're never guessing.
Get all of this handled for you
Snap receipts as you get them. Drive like you always do. Invoice from your phone. SoleTax turns all of it into MTD-ready digital records, and shows the tax building as you go. 14 days free, no card needed.
Join the betaSources: gov.uk Income Tax rates and Personal Allowances, Scottish Income Tax, and self-employed National Insurance rates. All checked on 4 July 2026.