Your Income & Expenses
Total turnover / income from all self-employed work.
Van, tools, insurance, phone, accountant etc. Not sure? Use our overhead calculator.
Student Loan (optional)
How income tax works for self-employed tradespeople (2025/26)
As a sole trader, you pay income tax on your taxable profit — not your gross income. Taxable profit is your total income minus your allowable business expenses. This is reported through Self Assessment, with your tax bill due on 31 January each year.
The 2025/26 tax bands for sole traders are:
| Taxable Profit | Income Tax Rate | Notes |
|---|---|---|
| £0 – £12,570 | 0% | Personal allowance — tax-free |
| £12,571 – £50,270 | 20% | Basic rate |
| £50,271 – £125,140 | 40% | Higher rate |
| Above £125,140 | 45% | Additional rate |
National Insurance for sole traders (2025/26)
Self-employed people pay Class 4 National Insurance through Self Assessment:
- Class 4 NI: 6% on profits between £12,570 and £50,270, plus 2% on profits above £50,270.
Class 2 NI was abolished from 6 April 2024. If your profits are above the Small Profits Threshold (£6,845 for 2025/26), your Class 2 NI is treated as paid automatically — you get the State Pension credit without making any payment. Those with profits below £6,845 can pay voluntary Class 2 at £3.50/week to protect their State Pension entitlement.
What counts as an allowable expense?
Allowable expenses are costs "wholly and exclusively" for business purposes. For tradespeople, this includes:
- Fuel and van costs (business use proportion)
- Tools and equipment
- Work clothing and PPE (not normal clothing)
- Business phone and internet
- Accountant fees
- Professional memberships (Gas Safe, NICEIC, etc.)
- Public liability insurance
- Marketing and advertising costs
Payment on Account — the trap that catches new sole traders
If your tax bill is more than £1,000, HMRC requires advance payments towards next year's bill. You pay 50% on 31 January and 50% on 31 July. In your first year this means your January payment could be 1.5x your expected annual bill (the current year plus 50% advance). Always set money aside monthly — a common rule of thumb is to put 25–30% of every payment you receive into a separate savings account.
Frequently asked questions
-
How much tax does a self-employed tradesperson pay?For 2025/26: no income tax on the first £12,570, 20% on profits up to £50,270, and 40% above that. Class 2 NI was abolished from April 2024 (it's now treated as paid automatically). Class 4 NI is 6% on profits between £12,570 and £50,270, then 2% above. For a sole trader earning £40,000 gross profit, the total tax bill is roughly £7,100–£7,200.
-
What counts as an allowable expense?Allowable expenses reduce your taxable profit. For tradespeople: van costs, tools, work clothing, phone and internet (business proportion), accountant fees, professional memberships, trade insurance, and marketing. Keep receipts for everything.
-
What is Payment on Account?If your Self Assessment tax bill is more than £1,000, HMRC requires advance payments towards next year's bill — 50% in January and 50% in July. This catches many new sole traders off-guard. If your bill could be over £1,000, start saving from day one.
-
When do I need to register for VAT?When your taxable turnover exceeds £90,000 in any 12-month period. Once registered, you charge 20% VAT on your services, collect it from customers, and pay it to HMRC quarterly (offset by VAT you've paid on business purchases).