Step 1: register with HMRC
Register for Self Assessment as soon as you start trading, and no later than 5 October after the end of your first tax year. You register once at gov.uk and receive your UTR (Unique Taxpayer Reference), a ten-digit number you will use for everything from tax returns to CIS. If you work in construction as a subcontractor, register for CIS as well the moment you have your UTR, or contractors must deduct 30% from your pay instead of 20%.
Step 2: understand what you will pay
As a sole trader you pay tax on your profits, not your turnover. For the 2026/27 tax year: nothing on the first £12,570 of profit (your personal allowance), then income tax at 20% up to £50,270 and 40% above that, plus Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above. On most of your taxable profit that is an effective 26%.
Step 3: keep records from day one
Keep every receipt, invoice and bank statement. Photograph paper receipts the moment you get them. A business bank account is not legally required for a sole trader, but it makes your bookkeeping dramatically cleaner and it is the first thing we set up with new clients. If your income will pass the Making Tax Digital thresholds, digital record-keeping in proper software is mandatory, not optional — see our free MTD and deadlines guide.
Step 4: claim what you are entitled to
Most new sole traders pay too much tax by under-claiming expenses: tools, protective clothing, mileage, phone, insurance, subscriptions and home office costs. Every £100 of legitimate expenses saves roughly £26 in tax. Our free expenses guide lists what counts and how to claim it.
Step 5: your first tax return
The tax year runs 6 April to 5 April. Your online return and payment are due by 31 January following the end of the tax year. Two traps catch first-timers. One: penalties start at £100 the day you are late and climb past £1,600 within a year. Two: payments on account. If your first bill is £1,000 or more, HMRC asks for next year's tax in advance at the same time, half on 31 January and half on 31 July, which can make the first bill feel half as big again. It is not extra tax, just earlier, but you need to know it is coming.
Step 6: know when the rules change
Two thresholds matter as you grow. VAT: once your turnover in any rolling 12 months passes £90,000 you must register for VAT. And company structure: at higher profits, trading through a limited company can be worth it, but it brings Companies House filings, director duties and more admin. Both are decisions worth making with advice rather than by accident.
Take the 5 Tax Mistakes cheat-sheet with you.
The five most expensive habits we see, as a free PDF. We will email it over, and tax tips too if you tick the box.
This guide is for general information only and does not constitute professional tax, legal or financial advice. Figures relate to the 2026/27 tax year. Consult a qualified adviser about your circumstances. Bookkeeping Partner Ltd is registered with the Institute of Certified Bookkeepers.