Sole Trader Tax Rates For 2021/22
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Tax advice
6
April 2021

Sole Trader Tax Rates For 2021/22

Take a look at the latest sole trader tax rates for the 2021/22 as well as our advice on how to prepare for the new tax year.

Jamie Trowell
Jamie Trowell
Accounting Lead at Coconut
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Looking for the rates for the 2022/23 tax year? Check out our 2022/23 self-employed tax rate guide.

A new tax year brings a new set of tax rates to be aware of!

Below you'll find a summary of the 2021/22 tax rates for sole traders.

It’s worth familiarising yourself with them so there are no surprises when you come to complete your tax return at the end of the tax year.

Personal Allowance

Everyone has a personal allowance that resets at the beginning of each tax year - this is the amount that you can earn tax-free. Remember that this changes based on your earnings (so you may need to check in on this a couple of times).

There has been an increase on the last tax year (up from £12,500). Below you can see how your income affects your personal allowance👇

Earnings Bracket

Personal Allowance

Earnings Bracket

Personal Allowance

£0-£100,000.
£12,570
£100,001 – £125,140
Your personal allowance will decrease by £1 for every £2 of income over £100,000
Over £125,140
£0

Income Tax Rates 2021/22

If you're 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 (£12,570)
No income tax payable
Basic rate (£12,571- £50,270)
20%
Higher rate (£50,271 – £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 (£12,570)
No income tax payable.
Starter rate (£12,571- £14,667)
19%
Basic rate (£14,668 and £25,296)
20%
Intermediate rate (£25,297 and £43,662)
21%
Higher rate (£43,663 and £150,000)
41%
Additional rate (Over £150,000)
46%

National Insurance Rates 2021/22

In addition to income tax, as a Sole Trader, you’ll also need to pay National Insurance to HMRC. The amount you need to pay is dependent on your profits. There are two forms of National Insurance; Class 2 and Class 4.

For the 2021/22 tax year the rates of National Insurance are as follows:

Class 2:

Profits (Per Year)

Class 2 Payable

Below £6,515
No class 2 is payable
Above £6,515
£3.05 per week

Class 4:

Profits (Per Year)

Class 4 Payable

Below £9,568
No class 4 is payable
Between £9,568 – £50,270
9%
Over £50,270
2%

VAT

Once the annual revenue of your company reaches £85,000 within a one year period, you will need to register for Value Added Tax (VAT), a tax paid on most goods and services. Once you’ve registered you will need to start charging VAT on your sales, but you can also reclaim VAT on purchases.

Managing VAT is where it can start to get slightly complicated, as there are a few different rates and VAT schemes to be aware of. It requires careful record-keeping of all transactions and the rate of VAT they were charged at. Here are the standard VAT rates:

VAT Type

Rate

Standard – applicable to most goods and services
20%
Reduced rate – a lower rate applicable to certain goods and services
5%
Zero rate – applied to specific goods and services such as food, books, newspapers, children’s clothes
0%

And there you have it, the tax rates that relate to your Sole Trader business for the 2021/22 tax year.

We'd always recommend speaking to an accountant if you feel unclear on any of this or have questions specific to your business.

If you already have one, you can securely share access to your bookkeeping data with them through the Coconut Accountant Portal.

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