When Do Sole Traders Pay Tax in the UK? (2025/26 Guide)
If you’re self-employed, one of the most common questions you’ll ask is:
When do sole traders pay tax?
Unlike employees, sole traders do not have tax deducted automatically through PAYE. Instead, you are responsible for reporting your income and paying tax directly to HMRC through the Self Assessment system.
In this guide, we explain:
- When sole traders pay Income Tax
- What Payments on Account are
- Key deadlines for 2025/26
- How much you might need to pay
- What happens if you miss a deadline
If you are newly self-employed, understanding this timeline is essential to avoid penalties and cash flow shocks.
How Are Sole Traders Taxed?
As a sole trader, you pay tax on your business profits, not your turnover.
Your taxable profit is:
Business income
minus
Allowable business expenses
You pay:
- Income Tax
- Class 4 National Insurance
- Class 2 National Insurance (if applicable)
All of this is reported through a Self Assessment tax return.
When Is Tax Due for Sole Traders?
Sole traders pay tax once per year, with possible advance payments.
The key date to remember is:
31 January
However, the full timeline is slightly more detailed.
Key Self Assessment Dates for 2025/26
For the 2025/26 tax year (6 April 2025 to 5 April 2026):
- 5 April 2026 – Tax year ends
- 31 January 2027 – Tax return deadline and tax payment due
- 31 July 2027 – Second Payment on Account due
These dates repeat each year.
When Do Sole Traders Pay Income Tax?
You pay Income Tax on your 2025/26 profits by:
31 January 2027
This payment covers:
- Your Income Tax for 2025/26
- Your Class 4 National Insurance
- Any Class 2 National Insurance due
- Your first Payment on Account for 2026/27 (if applicable)
This is why January tax bills are often larger than expected.
What Are Payments on Account?
Payments on Account are advance payments towards next year’s tax bill.
You must make them if:
- Your tax bill is over £1,000
- Less than 80% of your tax is collected at source
Most sole traders meet these conditions.
Payments on Account are:
- 50% of your current year’s tax bill
- Paid in two instalments
Due dates:
- 31 January
- 31 July
Example: How Payments on Account Work
Let’s say your 2025/26 tax bill is £8,000.
On 31 January 2027, you must pay:
- £8,000 (your 2025/26 tax bill)
- £4,000 (first payment on account for 2026/27)
Total due: £12,000
Then on 31 July 2027, you pay:
- £4,000 (second payment on account)
Total paid towards 2026/27: £8,000 in advance.
This is not double taxation. It is prepayment.
However, it often surprises new sole traders.
What Happens If Your Income Falls?
If your profits drop in 2026/27, you can apply to reduce Payments on Account.
However:
- If you reduce them too much
- And underpay
HMRC may charge interest on the shortfall.
Reductions should be based on realistic projections.
When Do New Sole Traders Pay Tax for the First Time?
If you start trading during 2025/26:
- Your first tax return covers profits up to 5 April 2026
- Tax is due 31 January 2027
This means you could trade for up to 22 months before paying tax for the first time, depending on your start date.
While this may seem helpful for cash flow, it can create a large first bill.
How Much Tax Do Sole Traders Pay?
For 2025/26, Income Tax bands in England are:
- 20% basic rate
- 40% higher rate
- 45% additional rate
You also pay Class 4 National Insurance on profits above the lower profits limit.
The amount you pay depends on:
- Total business profit
- Other income
- Pension contributions
- Personal Allowance availability
Do Sole Traders Pay Tax Monthly?
No.
Unlike limited companies paying Corporation Tax annually or employees paying PAYE monthly, sole traders pay tax:
- Once in January
- Possibly again in July
However, many sole traders choose to set aside money monthly to avoid cash flow problems.
A common approach is to reserve:
20%–30% of profit into a separate savings account.
The exact percentage depends on your tax band.
What If You Miss the 31 January Deadline?
If you file your tax return late:
- £100 automatic penalty
- Additional daily penalties after 3 months
- Further penalties at 6 and 12 months
If you pay tax late:
- Interest applies immediately
- 5% penalty after 30 days
- Further 5% penalties at 6 and 12 months
Penalties for filing and payment are separate.
Even if you cannot pay, you should still file on time.
What If You Cannot Afford to Pay?
If you cannot pay your tax bill in full, you may be able to set up a Time to Pay arrangement with HMRC.
This allows:
- Instalment payments
- Avoidance of certain penalties (if agreed early)
Interest still applies.
It is important to contact HMRC before enforcement action begins.
Do Sole Traders Have to Register for Self Assessment?
Yes.
If you start trading, you must register for Self Assessment by:
5 October following the end of the tax year in which you started.
Failure to register can result in penalties.
Summary Timeline for Sole Traders
Example: Trading during 2025/26
6 April 2025 – Tax year begins
5 April 2026 – Tax year ends
31 January 2027 – File return and pay tax
31 July 2027 – Second Payment on Account
The cycle then continues annually.
Why Sole Traders Often Get Caught Out
Common mistakes include:
- Not setting aside money for tax
- Forgetting about Payments on Account
- Assuming first tax bill will be small
- Missing the registration deadline
- Confusing turnover with profit
- Underestimating National Insurance
Good planning avoids January panic.
Practical Tips to Avoid Tax Stress
-
Set aside money monthly for tax
-
Keep bookkeeping up to date
-
Estimate your tax mid-year
-
File early (you can file months before January)
-
Understand whether Payments on Account apply
Filing early allows you to know your bill in advance.
You do not have to wait until January to submit your return.
Final Answer: When Do Sole Traders Pay Tax?
Sole traders pay tax:
- By 31 January following the end of the tax year
- With a possible second payment on 31 July
Most sole traders also make advance Payments on Account towards the following year.
The key dates are:
- 31 January
- 31 July
Understanding this timeline is essential to avoid penalties and cash flow problems.
If you are newly self-employed or unsure whether Payments on Account apply to you, reviewing your expected profit early in the tax year can prevent unexpected bills. Talk to Merranti Accounting today
