As a sole trader or small business owner, there’s a lot to keep up with when it comes to your tax bill. At takepayments, we want to make things a tad easier for you.
We’ve built a quick and easy income tax calculator designed for UK small businesses to get a snapshot of what they owe. All you need to do is enter a few details about your business, and our handy calculator will provide an estimate of your tax and NI bill. By getting a clear view of your estimated monthly take-home pay, you can budget with confidence for the year ahead.
We also surveyed 800 UK-based sole traders to understand their biggest challenges when it comes to income tax (spoiler: nearly a third (31%) of business owners didn’t know which tax band their business falls into).
Your 2024/25 Self-Assessment tax return must be filed, and any tax owed (including your balancing payment and first payment on account) must be paid to HMRC by 31 January 2026 (the 2026 Self-Assessment Tax deadline).
As a sole trader, your tax rate and the amount you pay depend on your annual profits. The UK tax system is progressive, meaning you'll pay more tax the more you earn.
This is where things can get a little bit complicated. In our survey, we found that 31% of sole traders are unsure of which tax band their business falls into, and nearly half (43%) are unaware of the tax rate for their band.
To bring you up to speed, keep reading as we’ve laid out the latest tax bands for the year ahead.
The Autumn Budget 2025 confirmed that sole trader income tax rates will remain frozen until April 2031. This means that as your business grows, you may find yourself moving into a higher bracket sooner than expected.
| Tax band | Tax rate | Trading profits |
| Personal allowance | 0% | For profits up to £12,570, you won’t have to pay any Income Tax. |
| Basic rate | 20% | For profits between £12,571 and £50,270, you'll pay a 20% tax rate. |
| Higher rate |
40% |
Business profits between £50,271 and £125,140 must pay 40% Income Tax. |
| Additional rate | 45% | High earners with profits over £125,140 must pay the additional rate of 45% Income tax. |
Note for high earners: If your income exceeds £100,000, your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000.
Also, if you earn taxable income from other sources besides your sole trader business, like if you collect rent as a landlord, this must also be included as part of your profit and count towards your total taxable income amount.
Along with Income Tax, you also have to pay National Insurance (NI) contributions if you’re self-employed or a sole trader. These contribute to state benefits like your State Pension.
| NI class | Trading profit | Rate |
| Class 4 | £12,570 to £50,270 | 6% of the previous year’s profits |
| Class 4 | £50,271 and over | 2% of the previous year’s profits |
Self-employed business owners earning over £12,570 a year also used to have to pay Class 2 NICs, but these were abolished in April 2024.
However, our research found that 34% of sole traders aren’t aware that they can still pay these voluntarily if their profits are less than the small profits threshold (£3.50 a week for 2025/26) to protect their eligibility for the State Pension and maternity allowance.
One of the biggest shifts for small businesses takes effect on 6 April 2026, changing how sole traders report their earnings to HMRC. It’s called Making Tax Digital (MTD). Instead of one annual filing, you will move to a digital-first system designed to reduce errors and help you stay on top of your business finances in real-time.
The new rules are being rolled out in phases based on your gross income (your total turnover before expenses), and here are the key dates to know:
Under MTD, the traditional annual Self-Assessment tax return will be replaced by a three-step reporting process where you’ll need to:
HMRC will typically notify you by letter if you meet the threshold based on your 2024/25 tax return. To get ready, start separating your business and personal banking now and look for HMRC-recognised software that fits your business.
At takepayments, our EPOS systems and card machines can help to make this easier by automatically generating digital records to keep track of your ongoing revenue.
You can also learn more about Making Tax Digital here.
In the UK, the standard Personal Allowance for self-employed and sole traders is £12,570. This is the amount of income you can earn in the 2025/26 tax year before you need to pay any Income Tax.
Keep in mind that if your adjusted net income is over £100,000, this allowance goes down by £1 for every £2 you earn above that mark.
The 2025 Autumn Budget confirmed that Income Tax and National Insurance thresholds in England, Wales, and Northern Ireland will remain frozen until April 2031.
However, because tax bands are frozen, you may find that as your business grows, you are ‘pushed’ into a higher tax bracket.
The UK tax system works on a self-assessment basis for sole traders. This means you are responsible for reporting your business profits and expenses via an annual return. Your tax return for the previous tax year must be reported to HMRC. Then, you must pay your bill by the 31 January, ahead of the start of the next tax year.
Surprisingly, our research found that over a third of sole traders (34%) are unaware of the deadline for making advance payments towards their bill.
To avoid penalties, you must keep records of all income and subtract allowable business expenses, like travel, office lighting, or paid training. Most importantly, you must set aside enough money to cover your bill by these key dates:
You can learn more about filing a Self-Assessment tax return and payment on account here.
Sole traders must register for VAT if their taxable income exceeds the VAT registration threshold.
Sole traders below the threshold don’t need to register for VAT, but they can do so voluntarily; our survey found that 41% of sole traders aren't aware of the benefits of voluntary registration. Even if you earn below £90,000, registering for VAT can:
Read more about VAT and voluntary registration here.
Once you know how much you can expect to pay on your taxes and National Insurance, it’s easier to know how much you need to set aside.
But when you’re a sole trader business, saving is easier said than done.
Luckily, there are a few practical ways you can plan ahead to ensure you’re not left out of pocket — and you can still see your business grow, whatever the circumstances.
Receiving a bill higher than anticipated can put your cash flow in the red. To avoid this, try over-forecasting your annual spend by 10% in your business planning.
This small contingency pot ensures you can take unforeseen financial setbacks without your budget taking the hit.
If you occupy a commercial property like a shop, restaurant, or office, you might be eligible for the UK government’s business rates relief schemes.
For example, for the 2025/26 financial year, eligible retail, hospitality, and leisure businesses can receive a 40% relief on their business rates. This relief is capped at £110,000 per business. In many cases, if you received the previous relief, this 40% discount will be applied automatically to your bill.
For more information, see our guide to business rates and relief schemes.
Loyalty to personal brands is great, but it can cost your business if you aren't careful. Market prices for energy, broadband, and insurance fluctuate constantly, so getting the best deal can mean shopping around to unlock higher savings.
The same goes for payment providers. Make sure you’re not being stung by hidden fees and high transaction costs; get quotes from other providers to see where your rates compare with those of larger businesses.
For more information, check out our top budgeting tips for small businesses.
Looking for some more advice? At takepayments, we provide our business customers with plenty of support to help with their payments and budgeting. We assign a personal advisor to all our customers for the first six months of their contract with us, ensuring they get off to a flying start.
Learn how takepayments can help your business thrive with card machines, EPOS systems and online payment solutions today.
You can also find more tools and resources from our team: