Tax is the part of self-employment most trades dread, but the sole-trader version is more manageable than it looks once you know the handful of things that actually apply to you. Here is the plain-English version.
Figures below are correct as of June 2026 and change at most Budgets. Always check the current numbers on gov.uk before you rely on them, and consider an accountant once your profits grow. This is general information, not tax advice.
What tax does a sole-trader tradesperson pay?
As a sole trader you pay Income Tax and Class 4 National Insurance on your business profits through Self Assessment, and you charge and pay VAT only once your turnover passes the registration threshold. You are taxed on profit (income minus allowable expenses), not on everything you invoice.
Self Assessment and the £1,000 trading allowance
If you earn more than £1,000 from self-employment in a tax year, which is the trading allowance, you must register with HMRC for Self Assessment and file a return. Under £1,000, you generally don't need to register or file.
Key dates for an online return:
| What | When | |---|---| | Register for Self Assessment | By 5 October after the tax year you started | | File online + pay your bill | By 31 January after the tax year ends |
So for the 2025–26 tax year (ended 5 April 2026), the online filing and payment deadline is 31 January 2027.
Allowable expenses: pay tax on profit, not turnover
You only pay tax on profit, so record every legitimate business cost. Common ones for trades:
- Tools, equipment and materials
- Van running costs (or simplified mileage)
- Fuel, insurance, and trade subscriptions
- Protective clothing and trade-specific kit
- A proportion of phone and admin costs
Keep receipts and log expenses as you go, not in a panic in January.
National Insurance
You pay Class 4 National Insurance on profits through Self Assessment. As of June 2026 the bands are:
| Profit | Class 4 rate | |---|---| | Up to £12,570 | 0% | | £12,570 – £50,270 | 6% | | Above £50,270 | 2% |
Class 2 National Insurance was reformed from April 2024, so most self-employed people no longer pay a separate flat weekly charge. Check the self-employed National Insurance page on gov.uk for your situation.
VAT: only once you cross the threshold
You must register for VAT once your taxable turnover passes £90,000 in any rolling 12-month period (the threshold has applied since April 2024). It's a moving 12-month window, not the tax year, and at the end of each month you look back over the last 12. Below the threshold, registering is optional. There is no separate, lower threshold for sole traders.
Making Tax Digital is coming
Making Tax Digital for Income Tax is being phased in: from April 2026, sole traders with qualifying income over £50,000 must keep digital records and send quarterly updates to HMRC, with lower income bands following later. If that's you, get on accounting software well before your start date. Check the current MTD timetable on gov.uk.
Keep the admin boring (in a good way)
- Separate business bank account.
- Log income and expenses weekly, not yearly.
- Put aside roughly 25–30% of profit for tax as you go, so January isn't a shock.
- Accounting software or a good accountant pays for itself once you're busy.
Just starting out? See our guide to going self-employed as a tradesperson. And if you want work that doesn't cost you a lead fee on top of your tax bill, Tradelynx is free to join with no commission on jobs.