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For 2025/26, your taxable profit is turnover minus allowable expenses minus the personal allowance (£12,570). On that profit you pay Income Tax at the rates below, plus Class 4 NIC.
| Band | Profit range | Income Tax | Class 4 NIC |
|---|---|---|---|
| Personal allowance | £0 - £12,570 | 0% | 0% |
| Basic rate | £12,571 - £50,270 | 20% | 6% |
| Higher rate | £50,271 - £125,140 | 40% | 2% |
| Additional rate | £125,141+ | 45% | 2% |
Worked example: £45,000 turnover, £5,000 expenses
- Turnover: £45,000
- Allowable expenses: £5,000
- Taxable profit: £40,000
- After personal allowance: £40,000 − £12,570 = £27,430 taxable at basic rate
- Income tax: £27,430 × 20% = £5,486
- Class 4 NIC: £27,430 × 6% = £1,646
- Total HMRC bill: ~£7,132
- Take-home from £40,000 profit: ~£32,868
This excludes student loan, payments on account, and any other reliefs (pension contributions, charitable giving, etc.). A specialist accountant typically saves £500-£2,000+ a year through correctly claimed expenses and tax planning at this level.
Why your tax bill might be different
- Other income (employment, dividends, rental, savings interest) all count toward your bands.
- Trading allowance of £1,000 is available instead of expenses — useful for very small side income.
- Pension contributions reduce taxable income and effectively claw back the personal allowance taper.
- Payments on account mean your first big tax bill is often 1.5x what you'd expect (last year's tax + 50% toward this year).
- Marriage allowance can transfer £1,260 of personal allowance to a spouse if your income is below £12,570.
Frequently asked questions
Is the personal allowance £12,570 for self-employed people?+
Yes. The £12,570 personal allowance applies to all UK income, including self-employed profit, employment, and most other sources combined. It's per person, not per income source.
Do I pay National Insurance as a sole trader?+
Yes — Class 4 NIC at 6% on profits between £12,570 and £50,270, then 2% above. Class 2 NIC was abolished for most self-employed people from April 2024 if profits exceed the Small Profits Threshold.
What are payments on account?+
If your tax bill is over £1,000, HMRC asks you to pay 50% toward next year's tax bill on 31 January, and another 50% on 31 July. So your first January bill can be 1.5x what you'd expect.
Should I incorporate as a limited company instead?+
Often worth considering above £50,000-£60,000 profit, but it depends on whether you take dividends, your retirement plans, and Inheritance Tax. We can match you with an accountant who'll do this review for you.
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