How to become a UK sole trader
You can legally be in business this week — no company registration required. Here is what HMRC expects from a new sole trader: when to register, the National Insurance you'll pay, and when (if ever) VAT applies.
What is a sole trader?
A sole trader runs their own business on their own — no Companies House registration and no company number; you are the business, so your profits are yours after tax.
The trade-off: liability is not limited. If the business owes money, you owe it personally. For most freelancers that's a fair deal; for big or risky contracts it matters.
You can start trading before registering with HMRC — but if you need to file a Self Assessment return, you must tell HMRC by 5 October after the end of that tax year. Register later and you may get a penalty.
The five steps to get set up
| Step | What to do |
|---|---|
| 1 Start trading — no permission needed | You can take your first client immediately. If you trade under a business name, invoices must also show 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 became liable to file (gov.uk/register-for-self-assessment). You'll get a Unique Taxpayer Reference (UTR) — keep it safe; you need it when filing your return, and you sign into your personal tax account with Government Gateway or GOV.UK One Login. |
| 3 Set up record-keeping from day one | Log every sale, expense and receipt as it happens — HMRC expects records kept for at least five years after the filing deadline. A separate business bank account is not legally required but makes this far easier. |
| 4 Work out your real rate before you quote it | Your hourly rate must cover income tax plus National Insurance. Use our free pricing calculator to see what any rate leaves you with, so you never undercharge. |
| 5 Keep an eye on the VAT threshold | If your taxable turnover in a rolling 12 months goes over £90,000 — or you expect your taxable turnover in the next 30 days alone to go over £90,000 — you must register for VAT (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 profits are £7,105 or more a year you don't pay Class 2 separately — it's treated as paid to protect your NI record. Below that, voluntary contributions cost £3.65 a week. |
| Class 4 National Insurance | If profits exceed £12,570: 6% on the part between £12,570 and £50,270, plus 2% above £50,270. Paid through Self Assessment — no separate NI payment date. |
Figures for England, Wales and Northern Ireland; check GOV.UK for the current year before filing.
Do you need to register for VAT?
Most new sole traders don't. You must register if your total taxable turnover in a rolling 12-month period goes over £90,000, or if you expect your taxable turnover in the next 30 days alone to go over £90,000 (gov.uk/vat-registration).
If you cross it, register within 30 days of the end of the month when you went over — registration takes effect from the first day of the second month after that. Registering late means paying VAT on sales made since you should have registered, plus a possible penalty.
Below £90,000 you can register voluntarily, but once registered every invoice must show VAT and you file returns regularly — so most beginners wait until they're close to the line.
Three habits that make everything easier
- Open a separate bank account for the business from your first payment in, even though it isn't legally required — mixed accounts are the number-one cause of messy records.
- Keep every receipt, contract and invoice; HMRC expects at least five years after the filing deadline. A simple spreadsheet or expense log is enough to start.
- Put payment terms on every invoice from day one ('pay within 7 days' plus a deposit for longer jobs). Without an agreed date, the law treats payment as overdue 30 days after your customer receives the invoice or you deliver the work (whichever is later).
See what your rate really pays
Our free pricing calculator works out income tax and National Insurance for any hourly rate — everything stays in your browser.
Free Pricing Calculator
Know exactly what you keep after tax before you quote a client — no sign-up, nothing uploaded.
Open the calculator →Sole Trader Starter Pack — £19
Includes the self-assessment checklist and deadline planner that keeps every date in this guide on one printable page, plus four more templates.
See what's inside →Sole trader questions, answered
When do I have to register with HMRC?
By 5 October after the end of the tax year in which you became liable 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. Register later and you may get a penalty.
What is a UTR?
Your Unique Taxpayer Reference: the number HMRC issues when you register for Self Assessment. You'll need it to file returns — you sign in with Government Gateway or GOV.UK One Login, not your UTR. Keep it safe, but don't put it on invoices unless asked.
Do I pay National Insurance separately?
No separate payment date for most sole traders: Class 4 (and voluntary Class 2) is paid through your Self Assessment bill each year.
When do I need to register for VAT?
If your taxable turnover in a rolling 12 months goes over £90,000, or if you expect your taxable turnover in the next 30 days alone to go over £90,000. You then have until 30 days after the end of the month you crossed it. Most new sole traders are well below this at first.
Do I need a business bank account?
Not legally required, but strongly recommended: keeping business money separate makes expenses and record-keeping much simpler from day one.