Key facts
- Personal allowance: £12,570 for 2026/27
- Class 4 NI: 6% on profits £12,570 to £50,270, then 2%
- Class 2 treated as paid from £7,105; voluntary £3.65/week below
- Trading allowance: £1,000 gross income threshold
- MTD for Income Tax from 6 April 2026 above £50,000 qualifying income
Estimate your bill with the Self Assessment calculator, check Income Tax with the income tax calculator, and Class 4 NI with the National Insurance calculator. See our UK finance guides for more on tax and self employment.
What is a sole trader?
A sole trader runs an unincorporated business. Legally, you and the business are the same person: you keep profits after tax, file your own accounts through Self Assessment, and are personally liable for business debts. HMRC uses the SA103 self employment pages on your tax return to record trading income and expenses.
Many people start as sole traders because setup is straightforward. You can still employ staff, but your tax position is always assessed on you as an individual, not as a separate company. For a wider look at deadlines and filing, see our Self Assessment guide.
How sole traders are taxed in 2026/27
Sole traders pay Income Tax on profit after allowable expenses. Profit means your business income minus costs you can legitimately deduct. For 2026/27, the first £12,570 of income is covered by the personal allowance and taxed at 0 percent. Above that, England, Wales and Northern Ireland use three main bands on your total income:
| Band | Taxable income (after allowance) | Rate |
|---|---|---|
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
If your adjusted net income exceeds £100,000, the personal allowance is reduced by £1 for every £2 over that level until it reaches zero at £125,140. That taper creates an effective 60 percent marginal rate for some earners in that band.
National Insurance for sole traders
Self employed National Insurance is separate from Income Tax but collected through the same Self Assessment return.
Class 4: You pay 6% on profits from £12,570 to £50,270, then 2% on profits above £50,270. Class 4 is calculated on profit after expenses, using the same profit figure as Income Tax.
Class 2: You no longer have to pay Class 2 as a mandatory charge. If your profits reach £7,105 or more, Class 2 is treated as paid for State Pension and benefit purposes at no extra cost. If profits are below £7,105, you can pay Class 2 voluntarily at £3.65/week to protect your record. See our National Insurance rates guide for full 2026/27 thresholds.
The trading allowance
The trading allowance is £1,000 of tax free self employment income. If your gross trading income is £1,000 or less in a tax year, you usually do not need to report it to HMRC or register for Self Assessment solely for that income.
If gross income is above £1,000, you can choose to deduct the £1,000 trading allowance instead of listing actual expenses, when that gives a better result. You cannot use the trading allowance alongside actual expense claims for the same trade. See our self-employed expenses guide for allowable costs, simplified mileage, and working from home flat rates.
Registering as a sole trader
You must register for Self Assessment if your self employment income requires a return. Register by 5 October following the end of the tax year in which you started trading. If you began in 2026/27 (which runs from 6 April 2026 to 5 April 2027), register by 5 October 2027.
Registration is through GOV.UK. HMRC issues a Unique Taxpayer Reference (UTR) and you file online each year. You may also need to register for VAT if turnover exceeds £90,000 in a rolling 12 month period.
Self Assessment Calculator 2026/27
Estimate Income Tax, Class 4 NI, student loan repayments, and payments on account on your self employment profits.
Key Self Assessment dates
| Task | Deadline |
|---|---|
| Register if newly self employed | 5 October after the tax year you started |
| Paper tax return | 31 October after the tax year ends |
| Online tax return and payment | 31 January after the tax year ends |
| Second payment on account | 31 July after the tax year ends |
For the 2026/27 tax year, the online filing and payment deadline is 31 January 2028. Paper returns are due by 31 October 2027.
Making Tax Digital for Income Tax
From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send quarterly updates to HMRC using compatible software. This is Making Tax Digital for Income Tax (MTD for IT). Lower thresholds follow in later years, bringing more businesses into the system over time.
MTD does not replace the need to understand your annual tax position. You still complete an end of period statement and a final declaration. Confirm the latest thresholds and start dates on GOV.UK before you rely on them for compliance planning.
Sole trader or limited company?
A sole trader structure is simpler and cheaper to run: no Companies House filings, no corporation tax return, and straightforward accounts. That suits many side hustles and early stage businesses with moderate profits.
A limited company can be more tax efficient at higher profit levels because you can mix salary and dividends, and corporation tax rates may differ from personal Income Tax. That comes with extra admin, accountant costs, and IR35 considerations if you contract through your company. Read our salary vs dividend guide for directors, and limited company vs sole trader for a profit level comparison. Contractors should also see IR35 explained.
Related Calculators
Frequently Asked Questions
You pay Income Tax on profit above the £12,570 personal allowance at 20 percent up to £50,270, 40 percent up to £125,140, and 45 percent above that. On top of that you pay Class 4 National Insurance at 6 percent then 2 percent. There is no separate business tax, profit is taxed as your personal income.
Yes. You pay Class 4 NI at 6 percent on profits between £12,570 and £50,270, and 2 percent on profits above £50,270 for 2026/27. Class 2 is no longer charged, but profits at or above £7,105 still count towards your State Pension automatically.
It is a £1,000 tax-free allowance for self-employment income. If your gross trading income is £1,000 or less you usually do not need to report it. If it is more, you can deduct £1,000 instead of your actual expenses when that gives a better result.
Register for Self Assessment by 5 October after the end of the tax year in which you started trading. For example, if you started in the 2026/27 tax year, register by 5 October 2027. Registering late can lead to penalties.
For an online return, you file and pay by 31 January after the tax year ends. A paper return is due earlier, by 31 October. If you make payments on account, the second instalment is due by 31 July.
They are advance payments towards your next tax bill, each usually half of your previous bill. They apply if your last Self Assessment bill was over £1,000 and less than 80 percent of your tax was collected at source, such as through PAYE.
From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and send quarterly updates to HMRC using compatible software. Thresholds reduce in later years, so more people will be brought in over time.
A sole trader setup is simpler and cheaper to run and suits lower profits. A limited company can be more tax efficient at higher profits because you can take a mix of salary and dividends, but it adds accounting and filing duties. The right choice depends on your profit level and plans.
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James Hartley is a CIMA qualified financial analyst and Founder and Lead Financial Analyst at WhatsUK, with 8+ years in UK tax, payroll, and compliance. He builds every calculator on WhatsUK and authors all editorial content, ensuring every figure is verified against official HMRC sources before publication.
Sources & Official References
- GOV.UK: Self employed National Insurance rates- Class 2 and Class 4 rates and thresholds
- GOV.UK: Income Tax rates and Personal Allowance
- GOV.UK: Set up as a sole trader- Registration and working for yourself
- GOV.UK: Self Assessment tax returns- Deadlines and payments on account
- GOV.UK: Making Tax Digital for Income Tax- FLAG: confirm threshold and 6 April 2026 start before publish
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Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.