How Much Can a Sole Trader Earn Before Tax in the UK?

A sole trader in the UK can earn up to £12,570 in profit each year before paying income tax, thanks to the standard Personal Allowance for the 2025-26 tax year.¹ That single figure answers most people’s question, but it hides two others worth knowing about. National Insurance starts at the same £12,570 profit level, and a separate rule forces you to register for VAT once your turnover reaches £90,000, whatever your profit looks like. How much you can earn before tax depends on which tax you mean.

The £12,570 Personal Allowance

The Personal Allowance is the slice of income you can receive each year without paying income tax on it. For 2025-26 it sits at £12,570 and has been frozen at that level since 2021-22, with the freeze signalled to continue through at least 2027-28.¹ Inflation quietly drags more sole traders into paying tax each year because of that.

The allowance covers your total income from every source combined, not just your business. Wages from a part-time job eat into it first, and whatever remains shelters your self-employment profit. Someone with £8,000 in trading profit and £6,000 in part-time wages has £14,000 of total income, so £1,430 sits above the allowance and is taxed at the basic rate.

Higher earners lose the allowance. Once your adjusted net income passes £100,000, £1 of Personal Allowance disappears for every £2 above that point, and the allowance is gone entirely by £125,140.² Between those two figures the marginal rate reaches roughly 60% because you’re paying 40% income tax while losing tax-free band at the same time.

The £1,000 Trading Allowance

Before the Personal Allowance is even in play, a separate rule handles very small trading incomes. You can earn up to £1,000 in gross trading income in a tax year without paying tax on it and without needing to tell HMRC anything.³ Gross means total sales before any expenses come off.

The Trading Allowance and expense deductions do not stack. If you claim it, you cannot also deduct actual costs. Once your gross income clears £1,000, you choose between subtracting the flat £1,000 or deducting your real expenses — whichever leaves the smaller taxable figure.³

National Insurance Starts at the Same £12,570

Income tax is only half the picture. Class 4 National Insurance also applies to self-employment profits above £12,570, and it’s the charge sole traders most often forget to budget for.⁴ For 2025-26 the rates are 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. That’s a real cut from earlier years: Class 4 was 9% before April 2024 and 8% for 2024-25.⁵

Class 2 contributions used to be a flat weekly charge, but the requirement to pay them was removed from April 2024.⁵ If your profits sit above the £6,845 Small Profits Threshold you now get National Insurance credits toward your state pension automatically, without paying anything.⁶ Below that threshold you can pay Class 2 voluntarily to keep your pension record intact.

Income Tax Rates Once You Pass £12,570

Cross the Personal Allowance and income tax applies in bands. For 2025-26:¹

Basic rate of 20% on taxable income between £12,571 and £50,270
Higher rate of 40% on taxable income between £50,271 and £125,140
Additional rate of 45% on taxable income above £125,140

The rates apply to net profit — total sales minus allowable business expenses. A sole trader with £60,000 in net profit pays nothing on the first £12,570, then 20% on the next £37,700, and 40% on the final £9,730. That’s roughly £11,432 in income tax before National Insurance is added.

VAT Is a Different Threshold Entirely

VAT catches growing sole traders out because it’s driven by turnover, not profit. Once your taxable turnover crosses £90,000 in any rolling 12-month period, you must register for VAT.⁷ That figure rose from £85,000 in April 2024.

Turnover is total sales before expenses. A sole trader with £95,000 in sales and £30,000 in costs has a taxable profit of £65,000, but the £95,000 turnover still clears the VAT line. Registration means charging VAT (usually 20%) on your sales, filing quarterly VAT returns, and reclaiming VAT on your business purchases. You can also register voluntarily below the threshold if reclaiming input VAT would work out in your favour.

Expenses Change the Profit Figure Thresholds Apply To

Both the Personal Allowance and Class 4 National Insurance are measured against profit, so anything you can properly deduct pulls your taxable figure down. HMRC allows costs incurred wholly and exclusively for business purposes.⁸ Typical deductible costs include:

Office supplies such as stationery, phone bills, and computer equipment
Travel for business journeys, including fuel, parking, train and bus fares
Stock and materials you buy to sell on or use in your service
Premises costs such as heating, lighting, business rates, and rent
Business insurance, bank charges, and accountancy fees
Marketing costs including website, advertising, and business cards
Training directly related to your current business activity

Personal costs never qualify, even if they occur during working hours. Where you work from home or use a personal car for business trips, you claim only the business portion. Track the split as you go and keep the receipts; reconstructing it a year later is where errors and lost deductions happen.

When You Have to Register and File

You must register as a sole trader with HMRC once your gross income for the tax year exceeds £1,000.⁹ Below that, the Trading Allowance means no registration and no return. The deadline to register is 5 October after the end of the tax year in which you started trading.¹⁰ Start trading in August 2025 and you have until 5 October 2026 to register.

Once you’re in the system, HMRC issues a ten-digit Unique Taxpayer Reference and enrols you in Self Assessment. The filing deadlines are 31 October for a paper return and 31 January for an online return. The 31 January date is also when any tax is due.

Missing the online deadline triggers an immediate £100 penalty even if no tax is owed. After three months, daily £10 penalties start and can run up to £900. At six months another charge kicks in worth 5% of the tax due or £300 (whichever is greater), and a further charge of the same size hits at twelve months.¹¹ The penalties alone are reason enough to file on time, even in a year when you’re uncertain about the exact figures.

1
GOV.UK. Income Tax Rates and Personal Allowances
2
GOV.UK. Income Tax Rates and Personal Allowances – Section: If You Earn More Than 100,000
3
GOV.UK. Income Tax – New Tax Allowance for Property and Trading Income
4
GOV.UK. Self-Employed National Insurance Rates
5
GOV.UK. A Reduction in the Main Rates of Primary Class 1 and Class 4 National Insurance Contributions and the Removal of the Requirement to Pay Class 2 National Insurance
6
GOV.UK. Rates and Allowances – National Insurance Contributions
7
GOV.UK. Increasing the VAT Registration Threshold
8
GOV.UK. Expenses if You’re Self-Employed – Overview
9
GOV.UK. Register as a Sole Trader
10
GOV.UK. Self Assessment Tax Returns – Registering
11
GOV.UK. Self Assessment Tax Returns – Penalties