Sole Trader and Freelancer Tax Rates 2025/26

Personal Allowance

Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Type: Personal Allowance Amount: £12,570 Description:
The first £12,570 of income you earn each tax year is completely tax-free.
Type: Transferable Amount Amount: £1,260 Description:
If you earn less than the Personal Allowance, you can transfer up to £1,260 of it to your spouse or civil partner (provided they pay the basic tax rate).
Type: Income Limit Amount: £100,000 Description:
Your Personal Allowance reduces by £1 for every £2 you make over £100,000. If your income reaches £125,140 or more, your allowance becomes £0.

Income Tax

Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Band: Personal Allowance Income Threshold: Up to £12,570 Standard Rates:
0%
 Dividend Rates:
0%
Band: Basic Rate Income Threshold: £12,571 to £50,270 Standard Rates:
20%
 Dividend Rates:
8.75%
Band: Higher Rate Income Threshold: £50,271 to £125,140 Standard Rates:
40%
 Dividend Rates:
33.75%
Band: Additional Rate Income Threshold: Over £125,140 Standard Rates:
45%
 Dividend Rates:
39.35%

If your total non-savings income (such as sole trader profits or salary) is under £17,570, you may qualify for a 0% tax rate on up to £5,000 of savings interest. This £5,000 limit reduces by £1 for every £1 you earn over the £12,570 Personal Allowance.

Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Band: Savings Income Nil Rate Band Taypayer Type: Basic Rate Tax Payers Allowance:
£1,000
 Description:
The amount of savings interest you can earn completely tax-free each year.
Band: Savings Income Nil Rate Band Taypayer Type: Higher Rate tax payers Allowance:
£500
 Description:
The reduced tax-free interest threshold for higher-rate earners. Additional rate earners get £0.
Band: Dividend Nil Rate Band Taypayer Type: All Taxpayers Allowance:
£500
 Description:
The flat amount of dividend income you can receive tax-free, regardless of your personal tax bracket.

National Insurance

Class 2 National Insurance

Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Band: Low Profits Profit Threshold: Below £6,845 Rate:
£185.50
 Description:
Voluntary annual flat payment to protect your future UK State Pension record.
Band: Small Profits Profit Threshold: Over £6,845 Rate:
£0
 Description:
Automatic credit. You pay nothing out-of-pocket, but secure your pension year for free.

Class 4 National Insurance

Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Band: Nil Rate Profit Threshold: Up to £12,570 Rate:
0%
Band: Main Rate Profit Threshold: £12,571 to £50,270 Rate:
6%
Band: Upper Rate Profit Threshold: Over £50,270 Rate:
2%

Other Allowances

Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Type: ISA Allowance Amount: £20,000 Description:
Tax-free limit for personal savings and investment growth.
Type: Rent a Room Relief Amount: £7,500 Description:
Tax-free threshold for letting out a furnished room in your main home.
Type: Trading Allowance Amount: £1,000 Description:
Tax-free gross trading income limit before you must report your earnings to HMRC.

Pension Allowances

Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Type: Gross Basic Amount Amount: £3,600 Description:
Maximum pension contribution allowed for individuals with no relevant UK earnings to still receive tax relief.
Type: Minimum Tapered Allowance Amount: £10,000 Description:
The absolute floor your annual pension allowance can drop to if you are subject to the income taper.
Type: Standard Annual Allowance Amount: £60,000 Description:
The standard maximum tax-free pension contribution limit for most UK taxpayers each tax year.
Type: Threshold Income Limit Amount: £200,000 Description:
The net taxable income level (after deducting personal pension contributions) used as the first test for high earners.
Type: Adjusted Income Limit Amount: £260,000 Description:
The total income level (including all employer and employee contributions) where tapering begins.

If your income breaches both the £200,000 and £260,000 thresholds, your standard £60,000 allowance is reduced by £1 for every £2 of Adjusted Income over £260,000, down to a minimum floor of £10,000.

Child Benefit Income Tax Charge

For incomes between £60,000 and £80,000, you pay back 1% of your Child Benefit for every £200 earned over £60,000.

VAT

If your business turnover grows significantly, you must monitor your income against the legal VAT registration limits. The standard rate of VAT in the UK is 20%.

Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Band: VAT Registration Income Threshold: £90,000 Standard and Property Rates:
You must register for VAT if your taxable turnover exceeds this in any rolling 12-month period.
Band: VAT Deregistration Income Threshold: £88,000 Standard and Property Rates:
You can apply to deregister from VAT if your 12-month turnover drops below this amount.

Capital Gains Tax

If you sell qualifying business assets, you can claim Business Asset Disposal Relief on a lifetime limit of up to £1,000,000 in gains before the standard Capital Gains Tax rate applies.

Individual taxpayers receive a £3,000 annual tax-free allowance, which is deducted from total gains before these rates apply.

How to calculate your gain:

  • Sale Proceeds (the amount you sold it for)
  • Less: Original Cost (the amount you paid for it)
  • Less: Allowable Expenses (buying/selling fees and property improvements)
Chronological timeline of tax due dates and deadlines for self-employed sole traders.
Band: Basic Rate Income Threshold: £12,571 to £50,270 Standard Rates:
18%
 Business Asset Disposal Relief Rates:
14%
Band: Higher / Additional Income Threshold: Over £50,270 Standard Rates:
24%
 Business Asset Disposal Relief Rates:
14%