Sole trader tax rates and thresholds for 2025/26 explained

Sole trader tax is built from a few moving parts: Personal Allowance, Income Tax bands, Class 4 National Insurance, and sometimes Class 2 voluntary contributions. Here are the 2025/26 figures in plain English.

The tax year

The 2025/26 UK tax year runs from 6 April 2025 to 5 April 2026. Your Self Assessment return for that year reports income and expenses inside those dates, not the calendar year.

Personal Allowance

The standard Personal Allowance is £12,570. This is the amount of taxable income you can usually have before paying Income Tax. If your total income is over £100,000, the allowance tapers away by £1 for every £2 above that level.

Income Tax bands for England, Wales, and Northern Ireland

Basic rate: 20% on taxable income in the basic rate band.
Higher rate: 40% on taxable income above the higher-rate threshold.
Additional rate: 45% on taxable income above £125,140.

The important point is that bands are marginal. Crossing a threshold does not mean all your profit is taxed at the higher rate; only the slice above the threshold moves into the next band.

Class 4 National Insurance

Class 4 NI is charged on self-employed profits. For 2025/26, the common sole trader headline rates are 6% on profits in the main Class 4 band and 2% on profits above the upper profits limit. This is why a realistic sole trader estimate needs to include both Income Tax and National Insurance.

Class 2 National Insurance

Class 2 has changed in recent years. Many sole traders with profits above the small profits threshold receive National Insurance credits without paying a separate compulsory Class 2 charge. If profits are low, voluntary Class 2 can still matter for protecting your State Pension record. For 2025/26, the weekly voluntary Class 2 figure to check against is £3.50 per week.

Worked example

Imagine a sole trader with £35,000 profit and no other income. The first £12,570 is usually covered by Personal Allowance, leaving taxable income for Income Tax. Class 4 NI is also due on profits above the lower limit. The final bill is therefore not just “20% of profit”; it is the combined result of allowance, Income Tax bands, and Class 4 NI.

To run your own number, use the self-employed tax calculator. If you have PAYE income as well, add it in the optional second field so Income Tax bands apply to your combined total.

Common mistakes

Estimating tax on turnover instead of profit.
Ignoring Class 4 NI when setting money aside.
Assuming a higher-rate threshold taxes every pound at 40%.
Forgetting PAYE income when calculating which band self-employed profit falls into.
Not checking whether voluntary Class 2 is useful for State Pension entitlement.

Build this into your cash flow

Once you understand the rates, turn the result into a savings habit. Our weekly tax set-aside calculator helps convert an annual estimate into a regular transfer.

Official sources

Check the live GOV.UK pages for updates before filing: Income Tax rates and Personal Allowances and self-employed National Insurance rates.