2026/27 Sole Trader Tax Rates and Allowances
This page shows sole trader tax rates and allowances for the 2026/27 tax year. A sole trader can include, but is not limited to: freelancers, landlords, contractors, tradespeople, online sellers, content creators, and consultants.
Personal Allowance
| Type | Amount | Description |
|---|---|---|
| Type: Personal Allowance | Amount: £12,570 | Description: The first £12,570 of income you earn each tax year is completely tax-free, regardless of whether this is trading income, savings income, or dividend income. |
| 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
| Band | Income Threshold | Rate |
|---|---|---|
| Band: Personal Allowance | Income Threshold: Up to £12,570 | Rate: 0% |
| Band: Basic Rate | Income Threshold: £12,571 to £50,270 | Rate: 20% |
| Band: Higher Rate | Income Threshold: £50,271 to £125,140 | Rate: 40% |
| Band: Additional Rate | Income Threshold: Over £125,140 | Rate: 45% |
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 standard £12,570 Personal Allowance.
| Band | Taypayer Type | Allowance | Description |
|---|---|---|---|
| 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. |
National Insurance
Class 2 National Insurance
| Band | Profit Threshold | Rate | Description |
|---|---|---|---|
| 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
| Band | Profit Threshold | Rate |
|---|---|---|
| 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
| Type | Amount | Description |
|---|---|---|
| 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
| Type | Amount | Description |
|---|---|---|
| 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
See the VAT Rates for 2026/27 for the latest rates.
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)
| Band | Income Threshold | Standard Rate | Business Asset Disposal Relief Rate |
|---|---|---|---|
| Band: Basic Rate | Income Threshold: £12,571 to £50,270 | Standard Rate: 18% | Business Asset Disposal Relief Rate: 18% |
| Band: Higher / Additional | Income Threshold: Over £50,270 | Standard Rate: 24% | Business Asset Disposal Relief Rate: 18% |