If you’re self-employed, one of the biggest questions is:
“How much tax am I actually going to have to pay?”
The honest answer is: it depends on your profit—not your income—and a few other factors.
But once you understand how it works, it becomes much easier to estimate.
First: it’s based on your profit, not your income
First: it’s based on your profit, not your income
When you’re self-employed, tax isn’t calculated on everything you earn.
It’s based on your profit, which is:
Income – allowable business expenses
So the more accurate your expenses are, the more accurate your tax will be.
The main types of tax you’ll pay
As a sole trader in the UK, you’ll usually pay:
1. Income Tax
This is based on your total taxable income.
For most people:
You don’t pay tax on the first £12,570 (personal allowance)
After that, you pay tax at increasing rates depending on your income
2. National Insurance
You may still see references to Class 2 National Insurance, but for most people this is no longer something you need to pay separately.
If your profits are above a certain level, you’ll still receive National Insurance credits automatically.
You will still pay:
Class 4 National Insurance, which is based on your profit
A simple example
Let’s say:
You earn: £40,000
Your expenses are: £10,000
Your profit is £30,000
You’ll then pay:
Income tax on the amount above your personal allowance
National Insurance based on your profit
Don’t forget payments on account
This is where many people get caught out.
If your tax bill is over a certain level, HMRC may ask you to make advance payments towards the next year’s tax.
This means:
your first tax bill can feel higher than expected
because you’re paying for the current year and part of the next
When do you pay tax?
For most sole traders:
The tax year runs to 5 April
Your tax return is due by 31 January
Your tax bill is usually due on 31 January (with a possible second payment in July)
How can you reduce your tax bill?
The main ways are:
Claiming all allowable expenses
Keeping accurate records
Planning ahead rather than leaving it to the deadline
It’s not about avoiding tax—it’s about making sure you’re only paying what you should.
Why your tax bill might not match your expectations
Common reasons include:
forgetting about National Insurance
missing expenses
payments on account
increases in profit year to year
So, how much will YOU pay?
That depends on:
your profit
your expenses
your personal circumstances
But once your records are clear, it becomes much easier to estimate and plan for.
Need help working it out?
If you’re self-employed and want a clearer idea of what your tax bill will look like, we’re happy to help.
If you’re based in Newcastle, Gateshead or the wider Tyne Valley, get in touch or book a call to talk it through.
