What being a sole trader means
A sole trader runs a business on their own, with no Companies House registration and no company number. Legally, you are the business, so the profits are yours once the tax is paid.
The catch is that your liability isn't limited. If the business owes money, you owe it personally. For most freelancers that's a reasonable trade, but it's worth thinking about before you take on a big or risky contract.
You can start trading before you register with HMRC. If you need to file a Self Assessment return, though, you have to tell HMRC by 5 October after the end of that tax year. Register late and you may get a penalty.
Getting set up in five steps
| Step | What to do |
|---|---|
| 1 Start trading | You don't need anyone's permission, so you can take on your first client straight away. If you trade under a business name, your invoices also need your own full name and an address for legal documents. |
| 2 Register for Self Assessment | Tell HMRC by 5 October after the end of the tax year in which you first needed to file (gov.uk/register-for-self-assessment). You'll get a Unique Taxpayer Reference (UTR). Keep it safe, because you need it to file your return. To get into your personal tax account you sign in with Government Gateway or GOV.UK One Login. |
| 3 Keep records from the first day | Write down every sale and expense and keep every receipt as you go. HMRC expects records to be kept for at least five years after the filing deadline. You don't legally need a separate business bank account, but it makes this a lot easier. |
| 4 Work out your rate before you quote | Your rate has to cover income tax and National Insurance. Our free pricing calculator shows what a rate leaves you with, which helps you avoid undercharging. |
| 5 Keep an eye on the VAT threshold | If your taxable turnover over a rolling 12 months goes above £90,000, or you expect your taxable turnover in the next 30 days alone to go above £90,000, you have to register for VAT (more below). |
What a sole trader pays (2026/27)
| Item | What you pay (tax year 2026 to 2027) |
|---|---|
| Income tax | On profits above your personal allowance (£12,570): 20% basic rate up to £37,700 of taxable income, 40% higher rate from £50,270, 45% additional rate from £125,140. Paid through Self Assessment. |
| Class 2 National Insurance | If your profits are £7,105 or more a year, you don't pay Class 2 separately. It's treated as paid, which protects your NI record. Below that, you can pay voluntary contributions of £3.65 a week. |
| Class 4 National Insurance | If profits are over £12,570: 6% on the part between £12,570 and £50,270, plus 2% on anything above £50,270. It's paid through Self Assessment, with no separate NI payment date. |
These figures are for England, Wales and Northern Ireland. Check GOV.UK for the current year's figures before you file.
When you need to register for VAT
Most new sole traders don't need to. You have to register if your total taxable turnover over a rolling 12-month period goes above £90,000, or if you expect your taxable turnover in the next 30 days alone to go above £90,000 (gov.uk/vat-registration).
If you go over, register within 30 days of the end of the month you went over. Your registration then takes effect from the first day of the second month after that. If you register late, you'll have to pay VAT on the sales you've made since you should have registered, and you may get a penalty as well.
You can register voluntarily below £90,000. Once you're registered, though, every invoice has to show VAT and you have to file regular returns, so most people starting out wait until they're getting close to the threshold.
Three habits worth starting early
Open a separate bank account for the business when your first payment comes in. It isn't a legal requirement, but mixing personal and business money is the most common reason records end up in a mess.
Keep every receipt, contract and invoice, because HMRC expects you to hold on to them for at least five years after the filing deadline. A simple spreadsheet or expense log is enough to start with.
Put payment terms on every invoice from the start. We'd suggest asking for payment within 7 days, with a deposit for longer jobs. If no date has been agreed, the law treats payment as overdue 30 days after your customer gets the invoice or you deliver the work, whichever is later.
Check what your rate leaves you with
Our free pricing calculator estimates the income tax and National Insurance on any rate you put in. It all runs in your browser.
Free Pricing Calculator
See roughly what you'd keep after tax before you quote a client. No sign-up, and nothing is uploaded.
Open the calculator →Sole Trader Starter Pack, £19
Has a self-assessment checklist and deadline planner with the key dates from this guide, and five other files.
See what's inside →Common sole trader questions
When do I have to register with HMRC?
By 5 October after the end of the tax year in which you first needed to file a Self Assessment return. If you start trading in April 2026 and need to file for that year, that's 5 October 2027. If you register late, you may get a penalty.
What is a UTR?
Your Unique Taxpayer Reference, the number HMRC gives you when you register for Self Assessment. You'll need it to file your returns, though you sign in with Government Gateway or GOV.UK One Login rather than with the UTR. Keep it somewhere safe, and don't put it on invoices unless someone asks for it.
Do I pay National Insurance separately?
For most sole traders there's no separate payment date. Class 4, and voluntary Class 2 if you pay it, goes on your Self Assessment bill each year.
When do I need to register for VAT?
When your taxable turnover over a rolling 12 months goes above £90,000, or if you expect your taxable turnover in the next 30 days alone to go above £90,000. You then have until 30 days after the end of the month you went over. Most new sole traders are nowhere near this at first.
Do I need a business bank account?
It isn't a legal requirement, but it's well worth having. Keeping business money separate makes your expenses and records much simpler from the start.