What is the Class 4 National Insurance rate for 2025/26?

The main rate for Class 4 National Insurance has been cut to 6% for the 2025/26 tax year. This applies to profits between £12,570 and £50,270.

What is Payment on Account?

Payment on Account is a way of paying next year's tax bill in advance. If your tax bill is over £1,000, HMRC will ask for 50% of the estimated next year's bill in January and another 50% in July.

Do I need to pay Class 2 National Insurance?

No. From April 2024, Class 2 National Insurance was effectively abolished for most self-employed people. You still get access to benefits like the State Pension without paying the weekly flat rate.

UK Sole Trader Tax Calculator 2025/26 (Ready Reckoner)

As a Sole Trader, you pay tax on your profits (Total Income minus Allowable Expenses), not your revenue. While being your own boss is great, the tax system can be confusing. Two recent changes have shaken things up: the cut to National Insurance rates and the abolition of Class 2 NI.

What are the 2025/26 National Insurance Rates?

For the consolidated 2025/26 tax year, self-employed workers benefit from a significant reduction in National Insurance.Class 4 National Insurance is now charged at 6% (down from previous highs of 9%).

You pay 0% on the first £12,570 of profit.
You pay 6% on profits between £12,570 and £50,270.
You pay 2% on any profit over £50,270.

This makes self-employment tax-efficient compared to employment (where Class 1 NI is 8%), though remember you do not get holiday pay or sick pay.

The "Payment on Account" Trap Explained

This is where most new freelancers get caught out. If your tax bill is more than £1,000, HMRC assumes you will earn the same next year and asks you to pay towards it in advance.

The "First Year" Shock

In your first year of profitable trading, you often have to pay 150% of your tax bill at once. You pay 100% of the tax for the year just gone, PLUS 50% of the estimated tax for the year ahead.Do not spend all your profit! Set aside 25-30% every month.

Allowable Expenses: Lower Your Tax Bill

You only pay tax on profit. Reducing profit (legally) reduces tax. You can claim for:

Office Costs: Stationery, software subscriptions, phone bills.
Travel: Fuel, parking, train tickets (for business trips, not commuting).
Clothing: Uniforms or protective gear (not everyday suits).
Use of Home: A portion of your heating/electricity if you work from home.

Sole Trader vs Limited Company

Simple is often better. Being a Sole Trader means less paperwork and lower accountancy fees. However, once your profits hit £50,000+, the tax efficiency starts to swing towards being a Limited Company Director. Check out our Dividend vs Salary Calculator to compare.