Income tax and Class 4 National Insurance on your sole trader profits — instant breakdown, no sign-up.
Calculate Your Tax Bill
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£
Annual take-home profit
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— per month
Gross profit—
Income Tax—
Class 4 National Insurance—
Pension contributions—
Take-home profit—
Income Tax Breakdown
Personal Allowance (0%)—
Basic Rate (20%)—
Higher Rate (40%)—
Additional Rate (45%)—
Class 2 NI — abolished April 2024
You no longer pay weekly Class 2 contributions. NI credits for your State Pension are granted automatically if your profits exceed £6,725.
⚠️ Your turnover may be approaching the £90,000 VAT registration threshold. Use our VAT calculator to check your position.
As a sole trader, you pay Income Tax and Class 4 National Insurance on your trading profits — that's your total business income minus allowable expenses. Unlike employed workers, tax is not deducted at source; you pay it through Self Assessment, filing a tax return each year by 31 January.
Income Tax for sole traders
Your profits are taxed using the same bands as employed income. You get the same Personal Allowance (£12,570 in 2026/27). The key difference: you calculate and pay your own tax once a year (with payments on account in July if your bill exceeds £1,000).
Class 4 National Insurance
Sole traders pay Class 4 NI on profits above £12,570. The rate is 6% on profits up to £50,270 and 2% above that. Class 4 NI contributes toward qualifying years for the State Pension.
Class 2 NI — abolished April 2024
You no longer pay weekly Class 2 NI contributions (previously £3.45/week). If your profits exceed the Small Profits Threshold (£6,725), NI credits are now granted automatically, protecting your State Pension entitlement.
Allowable expenses reduce your tax bill
You can deduct legitimate business expenses before calculating your tax. Common deductions for sole traders and freelancers:
Travel — 45p/mile for first 10,000 business miles; 25p/mile thereafter
Home working — flat rate (£6/week) or proportion of actual bills
Professional fees — accountant, solicitor, professional subscriptions
Marketing — website costs, advertising, business cards
Stock and materials used directly in your business
Bank charges on business accounts
The £1,000 Trading Allowance
If your gross trading income is £1,000 or less, it is completely tax-free and you don't need to file a Self Assessment return for that income. Above £1,000, you must register and file — but you can still deduct actual expenses (usually more beneficial than the allowance for active businesses).
Worked Examples
Example 1: Freelance designer — £35,000 profit
Sarah works as a freelance graphic designer. Her annual income is £42,000 and allowable expenses are £7,000, giving taxable profit of £35,000.
Income Tax: (£35,000 − £12,570) × 20% = £4,486
Class 4 NI: (£35,000 − £12,570) × 6% = £1,346
Total tax: £5,832 | Effective rate: 16.7%
Take-home: £29,168/year (£2,431/month)
Example 2: IT contractor — £75,000 profit (crosses Higher Rate)
Dan is a self-employed IT consultant with £75,000 in annual profit after expenses.
Emma runs a side business alongside part-time employed work. Her self-employed profits are £18,000. Note: HMRC combines all income when calculating tax, so her employment income affects which band the self-employed profit falls into. This calculator assumes self-employment is your only income source.
Income Tax: (£18,000 − £12,570) × 20% = £1,086
Class 4 NI: (£18,000 − £12,570) × 6% = £326
Total tax: £1,412 | Effective rate: 7.8%
Frequently Asked Questions
Self-employed income tax is calculated on your trading profits (income minus allowable expenses) using the same bands as employed income. For 2026/27: you pay no tax on the first £12,570 (Personal Allowance), 20% on profits £12,571–£50,270, 40% on £50,271–£125,140, and 45% above £125,140. You also pay Class 4 NI: 6% on £12,570–£50,270 and 2% above.
Yes — Class 4 NI at 6% on profits £12,570–£50,270 and 2% above. Class 2 NI (weekly flat-rate contributions) was abolished from April 2024. NI credits are now granted automatically for profits above the Small Profits Threshold (£6,725), protecting your State Pension entitlement.
You can deduct allowable business expenses: office costs, travel (45p/mile first 10,000 miles), staff costs, marketing, professional fees, stock and materials, and home working costs. You cannot deduct personal expenses. Capital equipment is handled via capital allowances rather than a direct deduction.
You must register with HMRC if your self-employment income exceeds £1,000 in a tax year. Registration must be done by 5 October following the end of the tax year in which you started. Register online at gov.uk/register-for-self-assessment.
You must register for VAT when your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period. You can register voluntarily below the threshold to reclaim input VAT. Use our VAT calculator for invoice calculations.
You contribute to a personal pension (SIPP) and receive tax relief at your marginal rate. Basic rate (20%) relief is added at source automatically. Higher/additional rate taxpayers claim the extra relief via their Self Assessment return. Pension contributions reduce your income tax bill but do NOT reduce your Class 4 NI liability.