Sole Trader Tax Rates for the 2021/22 Tax Year
Tax tips
April 2021

Sole Trader Tax Rates for the 2021/22 Tax Year

Sole traders: read on to find a list of the UK's Personal Allowance, income tax and National Insurance rates for the 2021/22 tax year.

Jamie Trowell
Jamie Trowell
Accounting Lead at Coconut
No items found.
No items found.
No items found.
Looking for the rates for the 2022/23 tax year? Check out our 2022/23 self-employed tax rate guide.

In the article below, you'll find a summary of the 2021/22 tax rates for sole traders. It’s worth familiarising yourself with them so that there are no surprises when you come to complete your tax return and pay your tax bill at the end of the year.

Personal Allowance 2021/22

Everyone has a Personal Allowance—an amount of money that you can earn tax-free—that gets reset at the beginning of each tax year. It's important to remember that how much this is changes based on your earnings (so you may need to check in on this a couple of times).

Earnings Bracket

Personal Allowance

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

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


Earnings below personal allowance (£12,570)
No income tax payable
Basic rate (£12,571- £50,270)
Higher rate (£50,271 – £150,000)
Additional rate (Over £150,000)

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

Tax Bands


Earnings below personal allowance (£12,570)
No income tax payable.
Starter rate (£12,571- £14,667)
Basic rate (£14,668 and £25,296)
Intermediate rate (£25,297 and £43,662)
Higher rate (£43,663 and £150,000)
Additional rate (Over £150,000)

National Insurance rates 2021/22

In addition to income tax, sole traders also need to pay National Insurance Contributions to HMRC. The amount that you need to pay depends on your profits.

There are two forms of National Insurance: Class 2 and Class 4. For the 2021/22 tax year, National Insurance rates 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
Over £50,270


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

Managing VAT is where finances 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


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

Always know how much you need to set aside for tax

With Coconut's tax app for sole traders and landlords, you'll be able to easily track your income and outgoings throughout the year—meaning you’ll always have an up-to-date view of how much you need to set aside for tax.

Start your 30-day free trial


No items found.

Keep reading

The simple way to take the hassle out of sole trader tax returns?

January can be a nightmare month for small-business accountants. The reason? Battling the looming end-of-month Self Assessment online-filing deadline, of course. And despite sending email reminders to your small-business clients, appealing for them to send the information you need to complete their Self assessment tax return, they leave it until January. Of course they do. They do every year.


Five things to consider when choosing a business bank account

Whether you’re just starting out or your business is more established and you’re considering switching banks, here are five key things to consider when weighing up which business bank account is right for you.


Seven ways your accountancy firm could attract more clients

If your accountancy firm is to grow, obviously, it will need to attract more clients (probably, many more). And no matter what you do for them, some will go elsewhere or decide to do their own accounting and tax returns. Customer churn is a challenge for all accountancy firms. So what can you do to attract more clients?