How do I register as a sole trader?

Register with HMRC for Self Assessment by 5 October in the tax year you started trading. You can register online at gov.uk. You will receive a Unique Taxpayer Reference (UTR) and must file a Self Assessment tax return each year. You do not need to register with Companies House.

How much tax do sole traders pay?

Sole traders pay Income Tax on profits after deducting allowable business expenses. For 2025/26: no tax on the first £12,570 (Personal Allowance), 20% on £12,571-£50,270, 40% on £50,271-£125,140, 45% above that. You also pay Class 2 NI (£3.45/week) and Class 4 NI (6% on profits £12,570-£50,270, 2% above that).

What is the difference between a sole trader and self-employed?

They are the same thing. 'Sole trader' is the legal business structure — a self-employed person who is the sole owner of their business. 'Self-employed' is the working status. All sole traders are self-employed, but self-employed people could also operate through a limited company or partnership.

Sole Trader Guide UK — How to Start and Run Your Own Business | PocketWise

Being a sole trader is the simplest way to work for yourself in the UK. There is minimal paperwork to get started, and you have full control of your business. Here is everything you need to know.

What Is a Sole Trader?

A sole trader is an individual who runs their own business. You and the business are legally the same entity — which means you have unlimited personal liability for business debts, but also complete control and minimal setup requirements.

Setting Up

Steps to Get Started

Step	Action	Cost
1	Decide on a business name (optional — can trade under your own name)	Free
2	Register for Self Assessment with HMRC	Free
3	Open a separate bank account (recommended but not required)	Free–£10/month
4	Set up record keeping	Free–£30/month
5	Register for VAT (if turnover exceeds £90,000)	Free
6	Get business insurance (if needed)	Varies

Registration Deadlines

Event	Deadline
Start trading	Register by 5 October in the same tax year
Started in April 2025	Register by 5 October 2025
File first tax return	By 31 January following the tax year
Pay tax	By 31 January (and 31 July for payments on account)

Tax and National Insurance

Income Tax on Profits (2025/26)

Band	Rate	Taxable Income
Personal Allowance	0%	£0–£12,570
Basic rate	20%	£12,571–£50,270
Higher rate	40%	£50,271–£125,140
Additional rate	45%	Over £125,140

National Insurance (2025/26)

Class	Rate	When
Class 2	£3.45/week	Profits over £12,570
Class 4	6%	Profits £12,570–£50,270
Class 4 (upper)	2%	Profits above £50,270

Example Tax Calculation

Profit: £40,000	Calculation	Amount
Income Tax (PA)	£12,570 × 0%	£0
Income Tax (basic)	£27,430 × 20%	£5,486
Class 2 NI	52 × £3.45	£179
Class 4 NI	£27,430 × 6%	£1,646
Total tax and NI		£7,311

Allowable Business Expenses

Category	Examples
Office and premises	Rent, utilities, business rates
Travel	Business mileage, public transport, parking
Staff	Salaries, subcontractor costs
Marketing	Advertising, website, business cards
Professional services	Accountant, solicitor
Equipment	Computer, phone, tools
Insurance	Business insurance, professional indemnity
Training	Courses related to your business
Working from home	Simplified expenses or actual costs
Phone and internet	Business proportion

Simplified Expenses

Expense	Simplified Rate
Business mileage (car)	45p/mile (first 10,000), then 25p/mile
Working from home	£6/week (no evidence needed), or £26/month (25–50hrs), £18/month (up to 25hrs)
Living at your business premises	Deduction based on occupants

Record Keeping

Requirement	Detail
What to record	All income and expenses
How long to keep	At least 5 years after 31 January filing deadline
Format	Digital (spreadsheet, accounting software)
What to keep	Invoices, receipts, bank statements
Making Tax Digital	Required for income over £50,000 from April 2026

VAT

Threshold	Detail
Registration threshold	£90,000 (rolling 12 months)
Must register	When turnover exceeds or is expected to exceed £90,000
Voluntary registration	Can register below threshold (useful if customers are VAT-registered)
Flat Rate Scheme	Simplified VAT for smaller businesses

See our VAT registration guide for full details.

Advantages and Disadvantages

Advantages	Disadvantages
Easy and free to set up	Unlimited personal liability
Simple record keeping	Can be less tax-efficient above ~£30,000 profit
Complete control	Less professional image (perception)
Privacy (no public accounts)	Harder to get investment
Can use personal bank account	Personally liable for all debts
Simple to close down	No limited liability protection

Sole Trader vs Limited Company

Factor	Sole Trader	Limited Company
Setup	Free, simple	£12+, more complex
Liability	Unlimited personal	Limited to company assets
Tax efficiency	Good up to ~£30,000	Better above ~£30,000–£50,000
Admin	Minimal	Significant (annual accounts, CT return)
Credibility	Variable	Often perceived as more professional
Privacy	Financial details private	Accounts are public

Key Dates

Date	What
5 October	Deadline to register for Self Assessment
31 October	Paper tax return deadline
31 January	Online tax return + first payment deadline
31 July	Second payment on account

For more on Self Assessment and registering as self-employed, see our dedicated guides.