The Self-Employed Tax Guide for UK Sole Traders (2025/26)

Going self-employed gives you freedom — and a tax bill you have to manage yourself. Unlike employees, no one deducts tax from your income automatically. This guide explains exactly how UK sole trader tax works in 2025/26, so you can budget confidently and avoid nasty surprises at the January deadline.

How self-employed tax differs from employment

As an employee, income tax and National Insurance are taken from your pay before you ever see it, through PAYE. As a sole trader, you receive your income gross and are responsible for calculating and paying your own tax through Self Assessment. You pay tax on your profit — your income minus allowable business expenses — not your total turnover.

What you'll pay: the three components

1. Income tax

Sole traders pay the same income tax rates as employees. For 2025/26, after your £12,570 personal allowance, profits are taxed at 20% (basic), 40% (higher) and 45% (additional) in the same bands as employment income.

2. Class 4 National Insurance

This is the main NI sole traders pay. For 2025/26:

3. Class 2 National Insurance

Class 2 NI has effectively been abolished as a separate charge from April 2024. Sole traders with profits above the small profits threshold are still treated as having paid it — protecting their entitlement to the State Pension and certain benefits — but it no longer adds to your bill.

A worked example: £45,000 profit

Imagine you're a freelancer with £45,000 of profit in 2025/26:

• Personal allowance (£12,570): 0% income tax
• Remaining £32,430 at 20%: £6,486 income tax
• Class 4 NI: 6% on (£45,000 − £12,570) = £1,946
• Total tax bill: roughly £8,432
• Take-home profit: roughly £36,568

Payments on Account — the surprise that catches people out

This is the single biggest shock for newly self-employed people. If your tax bill is over £1,000, HMRC requires you to make advance payments toward next year's bill, called Payments on Account.

Allowable expenses — reduce your bill legally

You only pay tax on profit, so claiming all your legitimate business expenses directly reduces your tax. Common allowable expenses include:

• Office costs (stationery, phone, software subscriptions)
• Business travel and mileage
• A proportion of home costs if you work from home
• Professional fees, insurance and bank charges
• Equipment and tools used for your work
• Marketing, advertising and website costs

Keep records and receipts for everything — HMRC can ask to see them.

Key dates for sole traders

• 5 April: End of the tax year.
• 31 October: Deadline for paper Self Assessment returns.
• 31 January: Deadline for online returns and paying any tax owed (plus first Payment on Account).
• 31 July: Second Payment on Account due.

Estimate your bill now

The earlier you know your tax bill, the easier it is to set money aside. Our self-employed tax calculator shows your income tax, Class 4 NI and take-home profit instantly — just enter your annual profit.

This article is for general information only and does not constitute financial, tax or legal advice. Tax rules and rates can change, and your personal circumstances affect how they apply to you. Always consult a qualified professional before making financial decisions. Figures are based on 2025/26 rates.