Tax Basics for Sole Traders
Understanding self-assessment, tax payments, and allowable expenses.
Tax Basics for Sole Traders
Understanding your tax obligations helps you stay compliant and avoid surprises. This module covers the essentials of self-assessment tax.
What Taxes You Pay
Income Tax
On your business profits (income minus allowable expenses).
National Insurance
Class 4: 6% on profits between £12,570 and £50,270, and 2% above that (2026/27). You no longer have to pay Class 2: if your profits are £7,105 or more, it is treated as paid to protect your National Insurance record (GOV.UK).
The Self-Assessment Timeline
- 5 April - Tax year ends
- 31 October - Paper return deadline
- 31 January - Online return deadline and payment due
- 31 July - Second payment on account due
Payments on Account
If last year's tax bill was £1,000 or more (and less than 80% of it was taken at source), you'll make payments on account - advance payments based on last year's bill.
Warning: Your first year can be a shock - you may owe 150% of your normal bill (last year's tax plus two payments on account).
Allowable Expenses
Deduct legitimate business expenses:
- Office costs and equipment
- Travel and subsistence
- Professional services
- Marketing and advertising
- Insurance
- Training (if relevant to your business)
Record Keeping
Keep your records for at least 5 years after the 31 January submission deadline for that tax year (GOV.UK):
- All income received
- All business expenses
- Bank statements
- Receipts and invoices
Tip: Digital accounting software makes this much easier and helps prepare your tax return.
When to Get Help
Consider an accountant if:
- Your accounts are complex
- You're VAT registered
- You have multiple income sources
- You're not confident with numbers