As a sole trader or small business owner, there’s a lot to keep up with when it comes to your tax bill.
We surveyed 400 UK-based sole traders to gain insight into their understanding of tax and National Insurance for the 2025/26 tax year — and our findings were very interesting (spoiler: nearly a third didn’t know which tax band their business falls into).
At takepayments, we wanted to make this all a tad easier. We’ve built a quick and easy sole trader tax calculator designed for small businesses in the UK to get a snapshot view of the income tax they should be paying.
All you need to do is throw in a few top-level details about your business (revenue, profit, etc.) and our handy calculator will give you an estimate of your tax and NI bill. It’ll even break it down into annual and monthly payments for you.
The calculator uses data you provide to work out your business's:
1. Annual profits
2. Monthly profits
3. Annual tax estimate
4. Annual National Insurance estimate
Here’s how these calculations work:
The UK tax system works on a self-assessment basis for sole traders. This means you're responsible for reporting how much profit your business makes and the amount you’ve incurred in expenses via your annual Self Assessment tax return. Your tax return for the previous tax year must be reported to HMRC. Then, you must pay your bill by the 31st of January, ahead of the start of the next tax year.
To work out your tax payments, you’ll need to keep records of all your income and subtract any allowable expenses you’ve incurred. These must be purely business expenses – think travel costs, office expenses like lighting and heating bills, and paid training courses – and can’t include personal expenditures.
And most importantly, you must make sure that you’re setting aside enough money to cover your tax bill when the time comes. Surprisingly, over a third of sole traders (34%) don’t know the deadline for making any advanced payments towards their bill.
The deadlines for paying your Self-Assessment tax bill are usually:
You can learn more about filing a Self-Assessment tax return and payment on account here.
In the UK, the current personal allowance for self-employed and sole traders lets you earn up to £12,570 before you need to pay any Income Tax (correct as of March 2025 for the 2025/26 tax year).
The income tax brackets, which include the personal allowance threshold, have been frozen since 2022 in England, Wales, and Northern Ireland and are expected to stay frozen until at least April 2028.
As a sole trader, your tax rate and the amount you pay depend on your annual profits. The UK tax system is progressive, meaning you'll pay more tax the more you earn.
This is where things can get a little bit complicated. In our survey, we discovered that 31% of sole traders don’t know which tax band their business is in, and nearly half (43%) aren’t aware of what the tax rate is for for their band.
There are four income tax brackets that range from 0-45%. Here are the sole trader tax rates in a bit more detail (correct as of March 2025 for the 2025/26 tax year):
| Tax Band | Tax rate | Trading profits |
|
Personal allowance |
0% |
For profits up to £12,570, you won’t have to pay any Income Tax. |
|
Basic rate |
20% |
For profits between £12,571 and £50,270, you'll pay a 20% tax rate. |
|
Higher rate |
40% |
Business profits between £50,271 and £125,140 must pay 40% Income Tax. |
|
Additional rate |
45% |
High earners with profits over £125,140 must pay the additional rate of 45% Income tax. |
If you earn taxable income from other sources besides your sole trader business, like if you collect rent if you’re a landlord, this must also be included as part of your profit and count towards your total taxable income amount.
Along with Income Tax, you will also have to pay National Insurance contributions if you’re self-employed or a sole trader. These contribute to your state benefits, like the State Pension, and are also worked out based on how much profit you make.
National Insurance contributions are also calculated based on a business’s trading profits but using two thresholds that are different from the Income Tax bandings. For those who are self-employed, the National Insurance classes for the 2025/26 tax year are:
|
NI class |
Trading profit |
Rate |
|
Class 4 |
£12,570 to £50,270 |
6% of the previous year’s profits. |
|
Class 4 |
£50,271 and over |
2% of the previous year’s profits. |
Self-employed business owners earning over £12,570 a year also used to have to pay Class 2 NICs that were set at a flat £3.45 a week, but these were abolished in April 2024 to simplify the National Insurance contribution structure for sole traders.
While business owners don’t have to pay Class 2 NICs anymore, they can still voluntarily pay them if their profits are less than the small profits threshold — something one in three (34%) of sole traders aren’t aware of. Self-employed or sole trader taxpayers may want to do this in certain circumstances like to protect their eligibility for state benefits like maternity allowance, a State Pension, and employment and support allowance (ESA).
Another key change to NI employer contributions for the 2025/26 tax year includes the increase of the employer NI contribution rate from 13.8% to 15% for employees who earn a salary of £5,000 to £50,270. You can read more about the changes to National Insurance contributions here.
Sole traders must follow the same VAT rules as other types of businesses, meaning they must register if their taxable income exceeds the VAT registration threshold or is expected to go over it in the next 30 days. The current VAT threshold for sole traders and small businesses in the 2025/26 tax year is £90,000.
Sole traders below the threshold don’t need to register for VAT, but they can do so voluntarily to reclaim VAT from qualifying expenses.
We found that 41% of sole traders weren’t aware of this, which means that they may not be reaping the benefits of voluntary registration. Being VAT registered, despite being below the threshold, means they can appear to be a bigger and more established business and can claim back money on business-related purchases and costs. This could also put them at a price advantage if their competitors aren’t VAT-registered.
Read more about voluntary registration here.
Once you know how much you can expect to pay on your taxes and National Insurance, it’s simpler to know how much you need to set aside.
But when you’re a sole trader business, saving is easier said than done.
Luckily, there are a few practical ways you can plan ahead to ensure you’re not left out of pocket — and you can still see your business grow, whatever the circumstances.
Business rates are taxes applied to commercial properties, like pubs, shops and offices. If you have a business premises and you’re looking for ways to cut costs, you might be eligible for discounted rates thanks to the UK government’s business rates relief schemes.
There are multiple relief schemes on offer, and they include everything from relief for charities to exemptions for certain types of buildings. It’s also worth noting that relief rates for retail, hospitality, and leisure businesses will be reduced from 75% to 40% in 2025/26, up to a cap of £110,000 per business.
For more information, see our guide to business rates and relief schemes.
Ever got a bill that was higher than expected? You can help set aside enough cash to cover these instances by overestimating your annual spend by 10%.
Adding in a small buffer like this allows you to take unforeseen financial hits without going beyond your budget. Over time, you’ll develop a keener eye for costs that tend to land higher than you estimate, and create contingency plans for them.
While loyalty is valuable in your personal relationships, it can cost your business if you’re not careful. The market price of things like energy, broadband and insurance constantly fluctuates, so if you’re not comparing these things at least annually, you could be missing out on significant savings.
The same goes for payment providers. Make sure you’re not being stung by hidden fees and high transaction costs; get quotes from other providers to see where your rates are compared with larger businesses.
While not everything is up for negotiation, there’s occasionally wiggle room with suppliers to help you get more favourable rates in return for repeat custom — you just need to ask!
For example, if you’re renting your premises and your rates suddenly go up, you might be able to negotiate a lower monthly rental fee by agreeing to sign on to a longer-term agreement. The benefit to your landlord is that they won’t risk losing revenue for a few months between tenants — and will probably be willing to sacrifice a bit of income for that guarantee.
For more information, check out our top budgeting tips for small businesses.
Looking for some more advice? At takepayments, we provide our business customers with plenty of support to help with their payments and budgeting. We assign all our customers a personal advisor for the first six months of their contract with us to make sure they get off to a flying start.
Learn how takepayments can help your business thrive with card machines, POS systems and online payment solutions today.
You can also find more tools and resources from our team: