How Much Tax Do Sole Traders Pay?
- Kyle Randall
- 1 day ago
- 3 min read
Understanding Sole Trader Tax in the UK
One of the most common questions new business owners ask is: “How much tax do sole traders actually pay?”
The amount of tax a sole trader pays depends on how much profit they make, not how much they earn in total. Unlike employees, tax isn’t deducted automatically — you’re responsible for working it out and paying HMRC.
In this guide, we explain what taxes sole traders pay, how they’re calculated, and when they’re due — in simple terms.
What Is a Sole Trader?
A sole trader is someone who:
Runs their own business
Is personally responsible for profits and losses
Pays tax on business profits
Reports income through Self Assessment
This is one of the most common business structures in the UK.
What Taxes Do Sole Traders Pay?
Most sole traders pay:
Income Tax
National Insurance
These are calculated on your profits, not your total income.
What Are Profits?
Your profits are worked out as:
Business income – allowable business expenses = profit
This is important because:
You don’t pay tax on turnover
Claiming the right expenses reduces your tax bill
How Much Income Tax Do Sole Traders Pay?
Sole traders usually:
Get a tax-free personal allowance
Pay Income Tax only on profits above that allowance
Pay different tax rates on different portions of profit
The more profit you make, the more tax you pay — but only on the amount above each threshold.
Do Sole Traders Pay National Insurance?
Yes. Most sole traders pay National Insurance in addition to Income Tax.
This is usually calculated alongside your tax bill and paid through Self Assessment.
When Do Sole Traders Pay Tax?
Sole trader tax is usually paid:
After the end of the tax year
Directly to HMRC
Deadlines often fall in January, and some people also make advance payments toward the next year.
You can learn more about how this works on our Self Assessment services page.
Can Sole Traders Reduce How Much Tax They Pay?
In many cases, yes. Common ways include:
Claiming allowable expenses
Making pension contributions
Planning income and payments
Good record-keeping makes a big difference.
What Happens If You Don’t Pay the Right Tax?
If you don’t pay or report correctly, HMRC may charge:
Late filing penalties
Late payment interest
Additional fines
Getting things right early helps avoid problems later.
Official HMRC Guidance
You can find official guidance on sole trader tax on the HMRC website:
How VIP Accounting Ltd Can Help
At VIP Accounting Ltd, we help sole traders across Benfleet, Essex and the UK:
Register as a sole trader
Prepare and submit Self Assessment tax returns
Calculate tax correctly
Claim allowable expenses
Reduce tax where possible
If you’re unsure how much tax you should be paying, speak to our team via our contact page.
FAQs
Do sole traders pay tax straight away?
No — tax is usually paid after the tax year ends.
Do sole traders get a tax-free allowance?
Yes — most sole traders benefit from the personal allowance.
Is sole trader tax higher than employed tax?
It can feel higher because nothing is deducted automatically.
Do I need an accountant as a sole trader?
Not legally, but professional help can save time and tax.
Who Wrote This Article
Kyle Randall, Founder of VIP Accounting Ltd, provides clear, practical guidance to help sole traders understand UK tax and stay compliant with HMRC.
VIP Accounting Ltd is a strategic accounting and tax advisory firm based in Benfleet, Essex, supporting sole traders and businesses across the UK with tax planning, Self Assessment, accounting, and HMRC compliance.
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