Sole trader income tax & National Insurance — 2026/27
£
Self Employed Tax Breakdown — 2026/27
Income Tax—
Class 2 NI (flat rate)—
Class 4 NI—
Total tax & NI—
Net profit after tax—
⚠️ Self Assessment tax is paid in two payments on account (31 Jan and 31 Jul) plus a balancing payment. Keep money aside throughout the year — typically 25–30% of profit for basic rate taxpayers.
How Are Sole Traders Taxed?
As a self-employed sole trader you pay income tax on your profits (income minus allowable expenses) plus Class 4 National Insurance. You report this through a Self Assessment tax return each year, with payment due by 31 January. Since April 2024, Class 2 NI no longer has to be actually paid if your profits are above the £7,105 Small Profits Threshold — you get a National Insurance credit automatically. Below that threshold, Class 2 is voluntary at £3.65/week if you want to protect your State Pension record.
Allowable Business Expenses
You can deduct allowable expenses from your income to reduce your taxable profit. Common allowable expenses include: office costs, travel (business only), stock and materials, staff costs, financial and legal costs, marketing, and a portion of home office costs.
Self Assessment Deadlines 2026/27
Deadline
What's Due
5 October 2026
Register for Self Assessment (if new)
31 October 2026
Paper tax return deadline
31 January 2026
Online return & tax payment deadline
31 July 2026
Second payment on account
Should I Go Limited?
When profits exceed approximately £30,000–£35,000, incorporating as a limited company can save tax. Directors can take a low salary (avoiding higher NI) and dividends (taxed at lower rates). However, there are additional admin costs and responsibilities involved.
Frequently Asked Questions
Sole traders pay Income Tax on their profits (income minus allowable expenses) at the same personal rates as employees — 20% basic, 40% higher, 45% additional — plus Class 4 National Insurance at 9% (then 2% above £50,270). Both are reported and paid through Self Assessment.
Since April 2024, most self-employed people no longer actually pay Class 2 NI — if your profits are above the £7,105 Small Profits Threshold, you get a National Insurance credit automatically. Below that threshold, Class 2 is voluntary at £3.65/week if you want to protect your State Pension record.
Common allowable expenses include office costs, travel, a proportion of home running costs if you work from home, stock and materials, marketing, professional fees, and business insurance. Only the business proportion of mixed-use costs (like a personal phone) is deductible.
The online Self Assessment deadline is 31 January following the end of the tax year (5 April), which is also when any tax owed is due. Paper returns are due earlier, by 31 October. Missing the deadline triggers an automatic £100 penalty even if no tax is owed.
It depends on your profit level, how you want to draw income, and your appetite for extra admin. Limited companies can be more tax-efficient at higher profit levels (via dividends and Corporation Tax planning) but come with more reporting obligations — a qualified accountant can model both options for your specific numbers.