Skip to content 
If you’re thinking about launching your own venture, choosing the right business structure is an important step. One of the most straightforward options is to become a sole trader. This means you’ll be in business for yourself, with full control and responsibility.
Why Operate as a Sole Trader?
A sole trader works independently, making it the simplest way to run a business. You don’t need a partner or a board of directors, and you won’t have to deal with the extra paperwork that companies often face. However, keep in mind that sole traders are personally responsible for the business’s debts. If you’re comfortable managing and funding your enterprise on your own, this structure can be a straightforward path to entrepreneurship.
Registering with HMRC
Who Needs to Register?
In the United Kingdom, you must register for Self Assessment as a sole trader if your trading income (the total from all businesses you run as an individual) is £1,000 or more in a tax year. Already submitting a Self Assessment tax return for another reason—like reporting rental or investment income? Complete the Self-Employment pages in your next return.
If you’ve never registered for Self Assessment, make sure you do so by 5 October following the end of the tax year when your business income first exceeds the £1,000 threshold. For instance, if you begin trading in 2024/25 and earn more than £1,000, you should register by 5 October 2025.
How to Register
You can register online at the official Gov.uk site. If you were previously registered for Self Assessment but didn’t file a return in the last tax year, you’ll need to reactivate your account. Make sure to keep track of any registration letters or codes you receive, as you’ll need them for filing returns online.
Understanding Income Tax
As a sole trader, you pay income tax on your business profits. Your profits combine with any other income (like wages from a job or rental income) to form your total taxable income. If that total is more than the personal allowance of £12,570 (for both 2024/25 and 2025/26), you start paying tax on the amount above it.
Here are the main rates for 2024/25 and 2025/26:
- 20% on taxable income up to £37,700 (basic rate)
- 40% on taxable income from £37,701 to £125,140 (higher rate)
- 45% on anything above £125,140 (additional rate)
Note: If your adjusted net income exceeds £100,000, your personal allowance shrinks by £1 for every £2 you go over that figure. By £125,140, you lose your allowance entirely.
National Insurance Basics
You’ll also pay Class 4 National Insurance once your profits exceed £12,570. The rates are:
- 6% on profits between £12,570 and £50,270
- 2% on profits above £50,270
If your profits go over the small profits threshold (£6,725 for 2024/25, £6,845 for 2025/26), you automatically earn a National Insurance credit toward your State Pension. However, you won’t pay any Class 4 if your profits stay below £12,570. If your profits are under the small profits threshold, you can still choose to pay voluntary Class 2 contributions (at £3.45 per week in 2024/25 and £3.50 per week in 2025/26) to help ensure you have enough qualifying years for your pension.
Key Deadlines
Your income tax and Class 4 NIC are due by 31 January following the end of each tax year. If your tax bill climbs above £1,000, you’ll start making payments on account for the following year, which are split into two instalments (usually 31 January and 31 July).
When Does VAT Come In?
Value Added Tax (VAT) registration becomes mandatory if your VATable turnover exceeds £90,000 in the last 12 months or you expect it to exceed this threshold in the next 30 days. If you must register, you’ll charge VAT on your sales and can usually reclaim VAT on business expenses. You’ll also need to file regular VAT returns, so keep accurate records of any taxable activities.
Keeping Records Organised
As a sole trader, you’re required to track your business income and expenses. Clear records are essential not only for tax returns but also to see how your business is doing. Many people find it easier to separate personal and business finances by using a dedicated bank account for the business. This helps avoid mixing personal bills with company costs. Keep invoices, receipts, and any other documents that support your income and deductions in case HMRC ever reviews your returns.
How We Can Help
Navigating taxes and regulations can feel overwhelming, especially when you’re just starting. At Tax Accountant, we’ll guide you through the entire process:
- Setting Up: We’ll help you register for Self Assessment and ensure you meet all deadlines.
- Tax Planning: Our experts can show you ways to reduce your tax bill legally so you can keep more of what you earn.
- Ongoing Support: Need advice on VAT registration or record-keeping systems? We’ll find the solutions that fit your business.
Ready to take the next step with confidence? Reach out to Tax Accountant today, and let us help you build a powerful foundation for your new venture.