If you’re working for yourself as a sole trader, understanding your tax responsibilities is essential. Many new business owners are unsure about how much tax they need to pay and what National Insurance contributions apply to them.
This guide explains the basics of self-employed tax in the UK and what sole traders need to know in 2025.
What Is Self-Employed Tax?
When you’re self-employed, you are responsible for reporting your income and paying tax directly to HMRC through a Self Assessment tax return.
Unlike employees, tax is not automatically deducted from your earnings. Instead, you must calculate and pay any Income Tax and National Insurance contributions owed based on your profits.
How Much Tax Do Self-Employed People Pay?
The amount of tax you pay depends on your taxable profit after allowable business expenses have been deducted.
For the 2025/26 tax year:
- The Personal Allowance is £12,570.
- Profits above the Personal Allowance are generally subject to Income Tax.
- Higher rates may apply if your profits exceed the basic rate threshold.
Your total tax bill will depend on your individual circumstances, income level, and any available tax reliefs.
National Insurance for Sole Traders
In addition to Income Tax, most self-employed individuals must consider National Insurance contributions.
Class 2 National Insurance
Class 2 National Insurance helps build entitlement to certain state benefits, including the State Pension.
Although the way Class 2 contributions are collected has changed in recent years, eligibility and entitlement rules remain important for many sole traders.
Class 4 National Insurance
Class 4 National Insurance is based on your annual profits.
If your profits exceed HMRC’s relevant thresholds, you may need to pay Class 4 contributions alongside your Income Tax through Self Assessment.
The amount payable depends on your level of taxable profit during the tax year.
What Expenses Can You Claim?
One of the advantages of being self-employed is that you can deduct allowable business expenses before calculating your taxable profit.
Common examples include:
- Office and equipment costs
- Business travel expenses
- Professional subscriptions
- Marketing and advertising costs
- Accountancy fees
- Business insurance
Keeping accurate records throughout the year can help reduce errors and ensure you claim all eligible expenses.
Do You Need to Register as a Sole Trader?
If you earn income from self-employment, you may need to register with HMRC as a sole trader and complete annual Self Assessment tax returns.
Registering early helps avoid penalties and ensures you remain compliant with HMRC requirements.
Final Thoughts
Understanding self-employed tax in the UK is crucial for managing your finances and avoiding unexpected tax bills. By keeping accurate records, claiming allowable expenses, and understanding your obligations for sole trader tax, you can stay on top of your responsibilities and focus on growing your business.
If you’re unsure about how much tax self-employed individuals pay or need help with your tax return, professional advice can help ensure everything is handled correctly.