Guide
Set up as a sole trader
How to register as self-employed and start trading as a sole trader.
Being a sole trader is the simplest way to run a business. You keep all profits after tax, but you're personally responsible for any business debts. There's no legal distinction between you and your business.
What you need to do
- Choose a business name (optional - you can trade under your own name)
- Register with HMRC for Self Assessment
- Keep records of income and expenses
- File a tax return and pay tax annually
Registration requirements
When to register
You must register with HMRC for Self Assessment by 5 October in your second tax year of trading.
- Example: Started trading 1 May 2024 → Register by 5 October 2025
- Example: Started trading November 2024 → Register by 5 October 2025
If you earn over £1,000 from self-employment in a tax year, registration is mandatory. Below £1,000, registration is optional but recommended for mortgage or credit applications.
Registration process
- Register online through HMRC Self Assessment
- Provide your National Insurance number, personal details, and trading start date
- HMRC sends your Unique Taxpayer Reference (UTR) within 10 working days
- Receive a separate activation code for your business tax account (within 7 days)
Late registration: If you register after 5 October and don't pay all tax owed by 31 January, you may receive a 'failure to notify' penalty based on unpaid tax. Late filing penalty: £100, escalating after 3, 6, and 12 months.
Business bank account
Not legally required - but strongly recommended. Most personal bank account terms prohibit business use. A separate account:
- Simplifies tax filing and expense tracking
- Establishes credibility with customers and suppliers
- Reduces risk of mixing personal and business expenses
- Makes it easier to accept card payments
Record-keeping requirements
You must keep records of all business income and expenses.
What to keep
- Sales/income: Invoices issued, till receipts, bank statements
- Expenses: Purchase invoices, receipts, mileage logs
- Personal drawings: Money you take from the business
- VAT records: If registered for VAT
How long to keep records
5 years from 31 January following the tax year. Example: 2024/25 tax return → Keep records until 31 January 2031.
Penalty for inadequate records: Up to £3,000 per tax year.
Tax and National Insurance
What you'll pay (2025/26)
- Income Tax: 20% basic rate (£12,571-£50,270), 40% higher rate (£50,271-£125,140), 45% additional rate (over £125,140)
- Class 4 NI: 6% on profits £12,570-£50,270, then 2% on profits above
- Class 2 NI: Abolished (voluntary £3.50/week available for pension credits)
Key deadlines
- 5 October: Register for Self Assessment (if new)
- 31 January: File online tax return and pay tax owed
- 31 July: Second payment on account (if applicable)
Tax reliefs available
Sole traders can claim various allowances to reduce their tax bill:
Making Tax Digital preparation
From April 2026, sole traders earning over £50,000 must use MTD-compatible software for digital record-keeping and quarterly reporting.
- April 2026: Income over £50,000
- April 2027: Income over £30,000
- April 2028: Income over £20,000
Start using accounting software now to prepare - options include QuickBooks, Xero, FreeAgent, and spreadsheets with HMRC-compatible bridging software.
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Choose your business name
You can use your own name or a trading name. Cannot include 'limited', 'Ltd', 'PLC', or imply government connection.
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Register with HMRC
Register for Self Assessment by 5 October in your second tax year. You'll receive a UTR within 10 working days.
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Open a business bank account
Not required but strongly recommended. Compare business account options - some are free for sole traders.
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Set up record-keeping
Use accounting software or a spreadsheet to track income and expenses. Keep receipts for 5 years.
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Understand your tax obligations
File Self Assessment by 31 January, pay Income Tax and Class 4 NI on profits.