Worked Examples
Example: Self Assessment for a Sole Trader
A worked Self Assessment example for a UK sole trader in 2025/26 covering profit, Income Tax, Class 4 NI and the final tax bill.
Quick answers
How is a sole trader's tax calculated?
Take gross self-employed income, deduct allowable expenses to get trading profit. Apply the personal allowance, then Income Tax bands (20%/40%/45%) and Class 4 National Insurance (6% from £12,570 to £50,270, then 2%). Pay through Self Assessment by 31 January.
What are payments on account for a sole trader?
Once your tax bill exceeds £1,000, HMRC takes two payments on account towards next year's bill — each equal to 50% of the current year's tax. They're due 31 January (with the balancing payment) and 31 July.
Do sole traders pay National Insurance on profits?
Yes. Class 4 NI is charged at 6% on profits between £12,570 and £50,270 and 2% above. Class 2 became voluntary from 2024/25 — those with profits over £6,725 still get a State Pension credit automatically.
Example: Self Assessment for a Sole Trader
Sara is a freelance graphic designer trading as a sole trader for the 2025/26 tax year.
Her figures
- Gross self-employed income: £58,000
- Allowable expenses: £8,000
- Personal pension contributions: £2,400 (gross £3,000)
- No other income.
Step 1: Trading profit
Income £58,000
Less expenses −£8,000
──────────────────────────
Trading profit £50,000
Step 2: Income Tax
Personal allowance for 2025/26: £12,570. Pension contributions extend the basic-rate band by £3,000.
Taxable income £50,000 − £12,570 = £37,430
Basic-rate band: £37,700 + £3,000 = £40,700
All £37,430 falls in the basic-rate band.
Income Tax: £37,430 × 20% = £7,486
Step 3: Class 4 National Insurance
Class 4 NI on profits between £12,570 and £50,000:
(£50,000 − £12,570) × 6% = £37,430 × 6% = £2,246
(No 2% band because profits don't exceed £50,270.)
Step 4: Total bill and payments on account
Income Tax £7,486
Class 4 NI £2,246
─────────────────────────
Total due £9,732
Because the bill is over £1,000, Sara also pays payments on account for 2026/27:
- 31 January 2027: £9,732 (balancing) + £4,866 (1st payment on account) = £14,598
- 31 July 2027: £4,866 (2nd payment on account)
Step 5: Filing
Sara files her SA100 + SA103S online by 31 January 2027, using the trading allowance check (her expenses exceed £1,000, so claiming actual expenses is better).
Lessons
- Pension contributions quietly extended Sara's basic-rate band — useful if her profit had been higher.
- Payments on account mean her first January bill is roughly 1.5× the actual liability — plan cash-flow accordingly.
- Class 4 NI kicks in alongside Income Tax for the self-employed.
This is general guidance for the 2025/26 UK tax year and is not personal tax advice. Always check the latest figures on GOV.UK or speak to a qualified accountant for your situation.