If you become self-employed in the UK, you need to register for Self Assessment by 5 October after the end of the tax year in which you started, keep records of income and expenses, file a tax return online by 31 January, and pay income tax and Class 4 National Insurance on your profits. The part that catches most beginners out is the first January bill, which can include a year's tax plus a 50% advance payment for the next year.
This walkthrough follows a new sole trader through their first year using 2026/27 rates. If your gross self-employed income is £1,000 or less, the trading allowance may mean you do not need to register at all. For a deeper guide to the return itself, see our Self Assessment step-by-step guide.
Step 1: register with HMRC
Register for Self Assessment as a sole trader through gov.uk once you start trading. The deadline is 5 October after the end of the tax year you started in, so if you start any time between 6 April 2026 and 5 April 2027, you must register by 5 October 2027. You will receive a Unique Taxpayer Reference (UTR), which you need to file.
Registering early costs nothing and lets you set up your HMRC online account in good time. You do not need to register if your total self-employed income (before expenses) is £1,000 or less in a tax year, thanks to the trading allowance, unless you need to file for another reason.
Step 2: keep records from day one
Open a separate bank account for the business, even if it is just a second personal current account. It makes record-keeping far easier. Then keep:
- Every invoice or sale, with the date and amount.
- Receipts for every business expense.
- Bank statements for the business account.
- Mileage logs if you use your own vehicle for work.
You must keep records for at least five years after the 31 January filing deadline for that year. Most sole traders now use the cash basis by default, which means you record income when it is paid to you and expenses when you pay them, rather than when invoices are issued.
Making Tax Digital for Income Tax applies to sole traders and landlords with qualifying income over £50,000 from April 2026, over £30,000 from April 2027 and over £20,000 from April 2028. If you are in scope, you must keep digital records and send quarterly updates using compatible software.
Step 3: claim your allowable expenses
You pay tax on profit, not turnover, so claiming every allowable expense matters. An expense is allowable if it is wholly and exclusively for the business: stock and materials, tools and equipment, business insurance, software, phone and internet (business share), advertising, accountancy fees and training that updates your existing skills.
Two simplified options can save time:
| Simplified expense | Flat rate |
|---|---|
| Business mileage (car or van) | 45p a mile for the first 10,000, then 25p |
| Working from home, 25 to 50 hours a month | £10 a month |
| Working from home, 51 to 100 hours | £18 a month |
| Working from home, 101 hours or more | £26 a month |
Alternatively, you can claim the £1,000 trading allowance instead of actual expenses, which helps if your costs are very low. Our sole trader expenses guide lists what you can and cannot claim.
Step 4: work out what you will owe
On your profit, you pay:
- Income tax at 20% from £12,570 to £50,270, 40% above that and 45% over £125,140 (Scotland has different bands).
- Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% above.
- Class 2 National Insurance is no longer compulsory. If your profits are above the £7,105 Small Profits Threshold you get State Pension credits automatically; below it, you can choose to pay voluntary Class 2 at £3.65 a week to protect your record.
Example: profit of £30,000 in 2026/27 with no other income. Income tax is 20% of £17,430 = £3,486. Class 4 is 6% of £17,430 = £1,045.80. Total: £4,531.80, about 15% of profit. If you also have a job, your Personal Allowance is usually used by your salary, so more of your profit is taxed.
Step 5: plan for the first January bill
If your tax bill is £1,000 or more and less than 80% of your tax was collected at source (through PAYE), HMRC asks for payments on account: two advance payments towards next year's bill, each half of this year's bill. In your first year, they land on top of the bill itself.
| Date | What is due | Example (£30,000 profit) |
|---|---|---|
| 31 January 2028 | 2026/27 tax + first payment on account for 2027/28 | £6,797.70 |
| 31 July 2028 | Second payment on account for 2027/28 | £2,265.90 |
| 31 January 2029 | Balancing payment for 2027/28 + first payment for 2028/29 | Depends on profit |
That first January payment is 150% of a year's tax. If your income has fallen, you can apply to reduce payments on account, but if you reduce them too far you will pay interest on the shortfall.
Step 6: set money aside every time you are paid
The safest habit is to move a percentage of every payment into a separate tax savings account as soon as it arrives. In the example, the true tax rate is about 15% of profit, but setting aside 25% to 30% gives a cushion for payments on account and any profit growth, and you can treat anything left over as a bonus. Keep the money in an easy access savings account so it earns interest until January.
Build a buffer for quiet months too. Our guide to budgeting on a self-employed income explains how, and the savings goal calculator works out how much to set aside each month for a January bill. SYM can turn that into a small daily amount so the bill never comes as a shock.
Deadlines and penalties
File online by 31 January following the end of the tax year (31 October for paper returns). Missing deadlines gets expensive:
- A £100 penalty for filing up to 3 months late, even if you owe no tax.
- After 3 months, £10 a day for up to 90 days (£900).
- After 6 months and again after 12 months, a further 5% of the tax due or £300, whichever is greater.
- For late payment, 5% of unpaid tax at 30 days, 6 months and 12 months, plus interest.
Once your turnover passes £90,000 in a rolling 12 months, you must also register for VAT. And do not forget your future: with no employer pension, see our guide to pension options for the self-employed, and use the pension calculator to set a target.
Frequently asked questions
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