If you are a sole trader your tax will be self-assessed. This articlegivesyou an overview of the self-assessment process, shows youhow tocalculate Income Tax and takes a look at the payments on account regime for the self-employed.
How much Income Tax will I pay as a sole trader?
The tax freeallowance for the tax year 2024/25 is £12,570.
Sole traders with income above £100,000 will see a restriction to their personal allowance (by £1 for every £2 that your adjusted net income is above £100,000) and sole traders with income in excess of £125,000 will not have a personal allowance.
Sole traders (and partners in partnerships once the partnership profits have been apportioned) will pay tax at the same rates as employees.
The table shows the tax rates you pay in each band if you have a standard Personal Allowance.
| Band | Taxable income 23/24 | Taxable income 24/25 | Tax rate |
|---|---|---|---|
| Basic rate | £12,570 to £50,270* | £12,570 to £50,270* | 20% |
| Higher rate | £50,270 to 125,140* | £50,270 to 125,140* | 40% |
| Additional rate | Over £125,140* | Over £125,140* | 45% |
There are different income tax rates for Scottish residents.
Note: Other income that sole traders receive in addition to business profits will need taxing separately. There are different rules for both tax and National Insurance for different income types. It is best to speak to a professional if you have particularly complex tax affairs.
Here are examples showing tax rates at 20% and 40% using the 24/25 tax rates for our calculations.
Tax doesn't need to be taxing
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How is my profit calculated?
The starting point will be a profit and loss account which is effectively the sales that the business has made minus the business’ costs and overheads. However, some of these costs, although perfectly allowable for accounting purposes are not allowed as expenses for tax purposes. The rules here are complicated and it is important you get it right, so it is worth paying a professional for advice.
Self employed tax and national insurance calculator
Use our handy calculator to find out how much tax will you will pay*
Your take home pay and calculation
- How do we work this out?
Please note that the results you see on your screen are estimates only. This is based on base rates and does not include things such as student loans. For full details of tax allowances, please see our article on 2024/25 tax rates.
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When do I need to report my profit?
Accounts are usually prepared for a 12 month period, which may not fall in line with the tax year. The last tax year 2023/24 started on 6 April 2023 and end on 5 April 2024. The current tax year 2024/25 started on 6 April 2024 and ends on 5 April 2025.
Where it is a 12 month accounting period, HM Revenue and Customs(HMRC) allow you to use the ‘normal basis’. This means you tax the accounts that end in the tax year even though part of the accounting period will fall in the previous tax year.
As an example let’s assume Chloe prepares her sole trader accounts each year to October. In 2024/25 her accountant will tax Chloe on the year’s accounts ending on 31 October 2024 as these accounts end in tax year 2024/25.
The rules are more complex for six months (short) or 14 months (long) sets of accounts, when a business makes losses or when a business ceases to trade.
When do I need to pay Income Tax?
Income Tax is payable on 31 January following the tax year. Where most of your income is not taxed throughout the year as it is earned e.ga self-employed individual, it is likely that you will fall under the payments on account regime. Payments on account are advancepayments towards your next year’s income tax.
Let’s say it is 2024/25 and you make payments on account each year.
- You will make a payment on account on 31 January 2024, which will be equal to half of the previous year’s tax liability.
- You will make a further payment on account on 31 July 2024, once again equal to half of the previous year’s tax liability.
Once the actual tax liability is calculated for 2024/25, you will deduct the payments you have already made and pay or reclaim the difference from HMRC.
Most small businesses will work with an accountant here to ensure they are making the correct payments on account.
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