Sole trader tax. *Shudder*
Okay, maybe shuddering is a little dramatic. Weāll help you navigate and understand what exactly a sole trader is, what taxes you need to pay as a sole trader and lots of entertaining bonus info, of course!
We are the talkers of tax, after all, so read on to avoid any sole trader tax entanglements.
A sole trader is the official way of referring to a self-employed person in the UK. This means that as a sole trader, youāre in charge of not only your business but also paying the tax you owe HMRC yourself, on time and correctly, too.
If you need help registering as a sole trader, read our guide on doing just that here.
There are a few different taxes that you need to get cosy with as a sole trader. How much tax you pay depends on how much you earn a.k.a profits after expenses š°
Firstly, youāll need to pay Income Tax to HMRC. Remember, to report your earnings and pay your taxes, youāll need to file a Self Assessment tax return.
| Income | Tax rate | |
| Ā£0 – Ā£12,570 | 0% | Personal allowance |
| Ā£12,571 – Ā£50,270 | 20% | Basic rate |
| Ā£50,271 – Ā£125,140 | 40% | Higher rate |
| Ā£125,141 and over | 45% | Additional rate |
Depending on how much you earn in one tax year, youāll have to pay a certain percentage of tax. We know, we canāt contain our excitement eitherš
As a sole trader, you need to pay Income Tax, National Insurance, and potentially, Value Added Tax (VAT). Luckily, itās quite straightforward, especially if youāre on top of your bookkeeping š©āš»
As mentioned above, Income Tax is paid depending on how much you earn during a tax year. Use our Income Tax calculator to estimate how much you might owe for this tax year.
When you’re self-employed, you have to pay your income tax and national insurance contributions yourself in your annual Self Assessment. Our calculator helps you quickly assess how much you owe.
However you may be eligible for a tax refund when:
In your case when you earn Ā£50,000:
You pay no income tax on first Ā£12,570 that you make
You pay Ā£7,286 at basic income tax rate (20%) on the next Ā£36,430
No contributions on the first Ā£12,570 that you make
You pay Ā£2,186 in contributions (at 6%) on the next Ā£36,430 that you make
You pay Ā£0 in NI Class 2 contributions
You need to save
to pay your Ā£9,471.56 tax bill by 31/1/2026 which is in 666 days
National Insurance (NI) contributions are paid so that you qualify for certain government-provided benefits and public services. Itās paid by PAYE employees, employers and self-employed people like you.
As a sole trader, you have to payClass 4 NI contributions.
šØFrom 6 April 2024 (the 24/25 tax year onwards),Ā Class 2 National Insurance is being scrapped. If youāre under the threshold and pay them voluntarily to qualify for benefits, youāll still be able to do so.
At the same time, Class 4 is reducing from 9% to 6%.
If youāre a sole trader and youāve earned over Ā£90,000 šø in the past 12 months, or expect to do so within the next 30 days, then youāll also need to register for and charge VAT to your customers.
VAT is a tax thatās added on most goods and services in the UK. You can register for VAT on HMRCās website.
No, a sole trader does not have to pay Corporation Tax because theyāre not part of nor own a corporation. Sole traders also do not need to file a company tax return (hooray!) but rather file a Self Assessment tax return (aw, shucks) to report their personal earnings. Limited companies (LTDs) on the other hand, will have to pay corporation tax and file a company tax return.
Depending on your situation, yes, a van is 100% deductible as a sole trader. You might be eligible to claim the whole or part of the cost of your van back on your Self Assessment. You can claim your van as a capital allowance but you cannot claim using the annual investment allowance.
If you donāt fit the criteria to claim all of it back, then you can claim back:
Read more in our guide on claiming tax relief on your van here.
And on your way, you goā¦ š
Itās a lot of information and things to add to your āmust rememberā list, we know. The easiest way to be on top of your game is by making sure youāre ready for tax season with immaculate bookkeeping – which we can help with for free!
Yes, we do do it all.
Check out our free bookkeeping tools – especially created for sole traders like you!
Youāll be able to:
And, you can do it all from one place.
You can also choose to get extra support from an accredited accountant if you need it!
Manage your self-employed finances in one place with 10/10 bookkeeping tools.
Or see our Guides, Calculators or Taxopedia
