What a sole trader is
A sole trader runs an unincorporated business personally. The owner and business are not separate companies. Business profit enters the individual’s Income Tax calculation, and National Insurance rules can also apply.
Check registration
HMRC generally requires sole-trader registration where gross trading income exceeds £1,000 in a tax year. Registration can also be needed for reasons such as claiming a trading loss or paying voluntary Class 2 contributions.
For a new 2025/26 filing obligation, tell HMRC by 5 October 2026. Use the sole-trader registration guide and do not assume an existing Self Assessment account automatically contains the new trade.
Keep records from day one
When trading starts, keep accurate records of all sales and income, business expenses, applicable VAT and PAYE records, personal income and the evidence supporting business transactions.
Record gross sales before fees, refunds, expenses, stock, assets, business mileage, homeworking use and personal drawings. Reconcile bank and platform statements. Records must normally be retained for at least five years after the 31 January submission deadline for the relevant tax year.
Calculate taxable profit
Start with turnover, deduct allowable business expenses and apply the correct accounting, capital, allowance and loss rules.
The trading allowance can deduct up to £1,000 where eligible, but it replaces actual expenses and other allowances for that income and cannot create a loss. It is not an extra deduction on top of expenses. Capital items can follow capital-allowance or cash-basis rules. Personal drawings are not business expenses.
File and pay
For the 2025/26 return, the registration deadline is 5 October 2026, the paper-return deadline is 31 October 2026, and the online filing and payment deadline is 31 January 2027. A second payment on account is due on 31 July 2027 where applicable.
Submitting and paying are separate. Check the online statement after filing.
Income Tax and National Insurance
Income Tax applies to total taxable income after allowances and reliefs. For 2026/27, Class 2 is treated as paid when profits are £7,105 or more. Below £7,105, voluntary Class 2 is £3.65 a week. Class 4 is 6% on profits over £12,570 up to £50,270 and 2% above £50,270.
Voluntary contributions can affect benefit or State Pension records, but eligibility and whether paying is worthwhile depend on the person’s National Insurance record. Use current-year rates rather than prior-year screenshots.
Other duties
Check VAT turnover, CIS, employment duties, licences and Making Tax Digital for Income Tax separately. MTD applies from 6 April 2026 where 2024/25 qualifying self-employment and property income was over £50,000, from 6 April 2027 where 2025/26 qualifying income was over £30,000, and from 6 April 2028 where 2026/27 qualifying income was over £20,000. Affected taxpayers use compatible software, maintain digital records and send quarterly updates, but still submit one annual tax return.
Annual workflow
- Reconcile gross income.
- Review expenses and assets.
- Calculate profit under the chosen basis.
- Add other income and gains.
- Complete and check the return.
- Save calculation and receipt.
- Pay and plan instalments.
- Carry forward records and losses.
Common mistakes
- Testing £1,000 against profit rather than gross income.
- Recording platform net deposits as turnover.
- Claiming drawings as expenses.
- Mixing private and business costs.
- Missing VAT or MTD checks.
- Treating filing as payment.
What to do next
- Confirm registration and deadlines.
- Separate business finances.
- Maintain records continuously.
- Review tax reserves quarterly.
- File early enough to plan payment.
- Check the statement after submission.