How the maths works
Taxable profit = turnover − allowable expenses. From that, deduct the personal allowance (£12,570 for 2025/26 if your total income is under £100K). What remains is taxed at:
| Band | Profit range | Income Tax | Class 4 NIC |
|---|---|---|---|
| Personal allowance | £0 - £12,570 | 0% | 0% |
| Basic | £12,571 - £50,270 | 20% | 6% |
| Higher | £50,271 - £125,140 | 40% | 2% |
| Additional | £125,141+ | 45% | 2% |
Quick example
- Turnover £45,000, expenses £5,000, profit £40,000.
- After £12,570 personal allowance: £27,430 taxed.
- Income Tax: £27,430 × 20% = £5,486.
- Class 4 NIC: £27,430 × 6% = £1,646.
- Total: ~£7,132. Take-home: ~£32,868.
First-year sole traders often get a shock: HMRC asks for last year's tax PLUS 50% of next year's tax (a "payment on account") on the same 31 January. Set aside 30%, not 25%.
FAQ
Frequently asked questions
What's the personal allowance for 2025/26?+
£12,570, frozen from previous years. It tapers away once your total income exceeds £100,000 — losing £1 for every £2 above. Fully gone at £125,140.
Do I pay Class 2 NIC?+
From April 2024, mandatory Class 2 NIC was abolished for self-employed people earning above the Small Profits Threshold (£6,725). You can voluntarily pay it to maintain a contributory state pension record if you earn below that.
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