Tax Rates for Sole Traders
James Trowell
Accounting Lead
Posted 3 months ago

Sole trader tax rates 19/20, know your numbers

When working for yourself, a key question you’ll be asking yourself is ‘what will I be earning and what taxes will I have to pay?’ Let’s take a look at the tax rates for a sole trader this new tax year, 19/20, so there are no surprises when you come to make your tax return.

Personal Allowance

Every individual has a personal allowance that resets each tax year. This is the amount in which you can earn income tax free. This tax year this has increased from £11,850 to £12,500, but it’s important to note that it changes based on your earnings. Below you can see the impact of your income on your personal allowance.

Earnings Bracket

Personal Allowance

£0-£100,000

£12,500

£100,000- £125,000

Your personal allowance will decrease by £1
for every £2 of income over £100,000

£125,000 or over

£0

Income Tax Rates 19/20

For the 19/20 tax year, if you are based in England, Wales or Northern Ireland, all income that you earn over and above your personal allowance will be taxed as follows:

Tax Bands

Rate

Earnings below personal allowance (£12,500)

No income tax payable.

Basic rate (Between £12,500- £50,000)

20%

Higher rate (Between £50,001- £150,000)

40%

Additional rate (Over £150,000)

45%

If you live in Scotland different income tax rates apply, these are shown below:

Tax Bands

Rate

Earnings below personal allowance (£12,500)

No income tax payable.

Starter rate (Between £12,500- £14,549)

19%

Basic rate (Between £14,549 to £24,944)

20%

Intermediate rate (Between £24,944 to £43,430)

21%

Higher rate (Between £43,430 to £150,000)

41%

Additional rate (Over £150,000)

46%

National Insurance Rates 19/20

In addition to income tax, as a sole trader you will also need to pay National Insurance to HMRC. The amount you need to pay is dependant on your profits. This is in two forms of National Insurance; Class 2 and Class 4 NICs. For the 19/20 tax year the rates of National Insurance are as follows:

Class 2 NIC

Profits (Per Year)

Class 2 Payable

Below £6,365

No Class 2 is payable.

Above £6,365

£3 per week.

Class 4 NIC

Profits (Per Year)

Class 4 Payable

Under £8,632

No class 4 is payable.

Between £8,632- £50,000

9%

Over £50,000

9% on everything earned between £8,632 and
£50,000, 2% on everything above £50,000.

Payments on account

One point worth noting is that you may need to make advance payments towards your tax bill, these are known as ‘payments on account’ and are made twice a year – 31st January and 31st July.

You will not need to make these payments if:

  • Your last self assessment tax bill was below £1,000
  • You’ve paid more than 80% of the tax you owe, for example through your tax code

Each payment is half of your liability from last year’s tax bill. If this is your first year as a sole trader it is unlikely you will have made payments on account. If you still have tax to pay after these payments then you will have a balancing payment to make by the 31st January.

And there it is, the tax rates that relate to your sole trade business for the 19/20 tax year. It’s always useful to speak to an accountant if you feel unclear on any of this, and to ensure you have planned accordingly for taxation in 2019.

If you already have one, you can share access to your Coconut account with them through the Coconut Accountant Portal. But if don’t yet have one, you can speak with one through our Integrated Accounting Partners. Book a call with our team today at a time that suits you.

Share this article

Free yourself from business admin

Download Coconut on iOS or Android. Open an account in minutes with a passport or driving licence. Once you’re approved, you’re ready to do business.

App Store
Google Play
Coconut - Tax