Wondering how to pay tax as a sole trader in the UK? Here’s what you need to know in under 60 seconds…

📌 Full guide to paying tax as a sole trader: [ Ссылка ]

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As a sole trader, you are responsible for calculating and paying your own tax and national insurance. This isn’t automatically deducted from your salary because you’re not employed.

Register As Self-Employed
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You need to register as a sole trader and for Self Assessment.

It’s also required if you:

- Have earned more than £1,000 from self-employment in the tax year;
- Must prove you’re self-employed, for example, to claim Tax-Free Childcare:
- Make voluntary Class 2 National Insurance payments in order to help qualify for benefits.

If you also work a ‘normal’ job as an employee and pay tax via PAYE, you still need to register for self-assessment to ensure you pay all appropriate taxes.

What Tax Does A Sole Trader Pay?
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As a sole trader, you will be liable to pay income tax on your profits, as well as Class 2 and 4 National Insurance.

You’ll also be responsible for:

- Keeping accurate records of your businesses sales and expenses;
- Submitting a Self Assessment tax return every year;
- Paying VAT, if you’re VAT registered.

How Much Tax Does A Sole Trader Pay?
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Your income tax is calculated based on your annual profits and split into different bands depending on what you have earned.

As a sole trader, you are allowed up to £12,570 tax-free as a personal allowance. So if your profits fall under this amount, you won’t be liable for any tax (assuming you have no other income).

If your business earned more than that in profits, you would fit onto one of the following tax bands, based on the tax year 2021/22.

£12,571-£50,270 = Basic Income Tax rate at 20%
£50,271-£150,000 = Higher Income Tax rate at 40%
£150,000+ = Additional Income Tax rate at 45%

What National Insurance Does A Sole Trader Pay?
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As a sole trader, you will be eligible for two types of National Insurance contributions.

- Class 2 contributions are a fixed rate charge of £3.05 per week for any business that makes over £6,515 per annum.
- Class 4 contributions are a 9% rate on any profits between £9,569 and £50,270, or 2% on profits over £50,270.

Do Sole Traders Need To Pay VAT?
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You’ll only be eligible for VAT if you are VAT registered. For most sole traders, registering for VAT won’t be necessary unless you qualify for all of the following points:

You are actively selling goods or services that are not exempt from VAT;
You live in, or your business is based in, the UK;
You have an annual turnover of more than £85,000.

Do Sole Traders Pay Corporation Tax?
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No, a sole trader does not need to pay corporation tax. This tax only applies to limited companies.

How Is A Sole Trader Taxed?
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Sole traders are taxed through their self-assessment returns. This is completed every single year, before the deadline of 31st January.

The form can be completed via online accounting software, an accountant, or directly on the government website.

Once you have completed all pages of your self-assessment form online, you will receive a confirmation of how much Income Tax and National Insurance you need to pay. You will also receive instructions for making the payment, for example bank transfer details or an online payment gateway.

Resources
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Best Accounting Software For Sole Traders: [ Ссылка ]

Legal Obligations Of A Sole Trader: [ Ссылка ]

Sole Trader Vs Limited Company: [ Ссылка ]

Changing From A Sole Trader To A Limited Company: [ Ссылка ]




DISCLAIMER: The information contained in this video is for general information purposes only. Any reliance you place on such information is therefore strictly at your own risk. Always consult with a qualified professional for advice tailored to your individual situation.

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