The two taxes sole traders need to think about

As a sole trader, the tax bill is usually built from two parts:

1. Income Tax on your taxable profit.
2. National Insurance contributions linked to self-employment.

The key phrase is taxable profit. That means your income after allowable business expenses, not your total sales or turnover. If you invoice 60,000 pounds in a year but you have 18,000 pounds of genuine business costs, HMRC does not tax you on the full 60,000 pounds. It taxes you on the profit figure left after those costs have been deducted.

That distinction matters enormously. It is also one of the clearest reasons why organised bookkeeping and accurate expense tracking usually save more money than people expect.

Income Tax rates for 2025/26

For the tax year running from 6 April 2025 to 5 April 2026, the standard Personal Allowance remains 12,570 pounds. That is the amount you can usually earn before Income Tax starts.

For taxpayers in England, Wales, and Northern Ireland, the main rates on non-savings, non-dividend income are:

• Up to 12,570 pounds: 0%
• 12,571 pounds to 50,270 pounds: 20%
• 50,271 pounds to 125,140 pounds: 40%
• Over 125,140 pounds: 45%

If your income goes above 100,000 pounds, your Personal Allowance begins to reduce by 1 pound for every 2 pounds above that threshold. By the time income reaches 125,140 pounds, the allowance is fully lost. In practice, this creates a very expensive stretch of income where planning ahead really matters.

National Insurance for sole traders in 2025/26

National Insurance for sole traders does not work the same way as PAYE employee deductions. For 2025/26, the main points are:

• If your profits are 6,845 pounds or more, Class 2 National Insurance is treated as paid automatically to protect your National Insurance record. In most cases, you do not have to physically pay Class 2.
• If your profits are below 6,845 pounds, you can choose to pay voluntary Class 2 at 3.50 pounds per week if you want to protect State Pension and certain benefit entitlements.
• If your profits are above 12,570 pounds, you pay Class 4 National Insurance.

For 2025/26, Class 4 is charged at:

• 6% on profits between 12,570 pounds and 50,270 pounds
• 2% on profits above 50,270 pounds

This is collected through Self Assessment alongside Income Tax. So when sole traders talk about their January tax bill, it is usually a combined bill rather than separate payments to different departments.

Worked example: 35,000 pounds of sole trader profit

Let us make it real. Say your taxable sole trader profit for 2025/26 is 35,000 pounds and you are taxed under the standard England, Wales, or Northern Ireland rates.

Income Tax

• Personal Allowance: 12,570 pounds at 0%
• Remaining taxable profit: 35,000 pounds minus 12,570 pounds = 22,430 pounds
• Income Tax at 20% on 22,430 pounds = 4,486 pounds

National Insurance

• Class 2: usually nil payable here because profits are above 6,845 pounds, so entitlement is treated as protected
• Class 4: 6% x 22,430 pounds = 1,345.80 pounds

Estimated total bill through Self Assessment: 5,831.80 pounds

That leaves an estimated take-home of about 29,168.20 pounds before anything like student loan repayments or other personal tax factors. For someone at this level of profit, the difference between tidy expenses and messy expenses can easily move the final bill by hundreds or even thousands of pounds.

Common allowable expenses that reduce taxable profit

Allowable expenses reduce both Income Tax and Class 4 National Insurance because they reduce your taxable profit.

• Office costs such as stationery, software subscriptions, and postage
• Business travel such as fuel, train fares, parking, and hotels for work trips
• Use of home costs where part of the home is used for business
• Professional fees such as accountancy, insurance, and relevant memberships
• Stock, tools, and materials
• Marketing and advertising
• Business phone costs or the business-use proportion
• Specialist or protective clothing rather than everyday clothing

Payments on Account: the part many sole traders do not see coming

One of the biggest shocks for newer sole traders is not the tax rate itself. It is Payments on Account.

If your last Self Assessment bill is more than 1,000 pounds, HMRC will often ask for advance payments towards the following tax year as well. Each payment is usually 50% of the previous year's bill and the due dates are 31 January and 31 July. There are exceptions, including where more than 80% of the tax was already collected at source, but many sole traders do end up within the Payments on Account rules.

That is why the first major tax deadline can feel much larger than expected. You may be paying the balancing amount for the year just finished and the first instalment for the next one. Budgeting for that from the start is essential. A practical habit is to move 25% to 30% of every payment you receive into a separate tax savings account so the January bill does not become a cash flow emergency.

Making Tax Digital is close, but it does not change the tax rates

From 6 April 2026, sole traders and landlords with qualifying income over 50,000 pounds will be brought into Making Tax Digital for Income Tax. That threshold drops to 30,000 pounds from April 2027 and 20,000 pounds from April 2028.

This does not change how much tax you pay. It changes how you keep records and how often information is reported. If you want the fuller picture, read our guide: Making Tax Digital in 2026: What UK Sole Traders Need to Know.

The main point here is simple: software and record-keeping are becoming more important, not less. If your bookkeeping is currently reactive, now is the right time to fix it.

How an accountant helps you pay the right amount, not just any amount

Knowing the headline rates is useful. Applying them properly is where the real value sits.

A good accountant helps you separate personal and business costs properly, claim legitimate expenses, stay ahead of deadlines, budget for Payments on Account, and avoid the common mistakes that leave sole traders overpaying or scrambling at the last minute.

Aurestone Advisory works with sole traders and owner-led businesses that want clearer numbers and a calmer way to handle tax. If you want a second pair of eyes on your 2025/26 tax position, you can message on WhatsApp, use the contact page, or book a free Tax and Finance Review.