If you're a sole trader, you'll complete a tax return at the end of each tax year, which ends each 5 April, to tell HMRC what your earnings are so they know how much tax you owe. You have until 31 January in the following year to submit your tax return online.

Your personal tax bill is calculated from 3 main elements:

  • Income Tax

  • National Insurance

  • Student Loan (if you have one)

Here's how each gets calculated.

Income Tax

You get a personal allowance each year which is tax free, then you pay 20% up to the higher rate band, then 40%. There's an additional rate of 45% for high earners too.

Your Personal allowance also reduces by £2 for every £1 you earn over £100,000.

National Insurance

Class 4
These are contributions we make primarily towards state pensions, but also towards other benefits like unemployment and maternity pay. There's a smaller allowance for NI than for Income Tax. 

As a sole trader, you pay "Class 4" National Insurance based on the following rates:

Note that the main rate if you're self-employed is 9%, but if you're employed it's 12%. 

Class 2
In addition to this, you also pay "Class 2" National Insurance, which is £2.95 per week, so £153 a year - you can pay this along with the rest of your tax bill at the end of the year.

The threshold for paying class 2 national insurance is £6,205. If you earn less than this, then you don't have to pay this. More on this on the Gov website.

Student Loan

If you have a student loan in the UK, you pay it back based on your earnings. 

Depending on when you completed your studies, you'll be on either Plan 1 or Plan 2 - each has different rates of repayment. Plan 2 applies if you are studying in England and Wales and started your studies on or after 1 September 2012.

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