Starting your own business? Here's where to begin.
You've decided to work for yourself. Exciting!
Maybe you're starting a side business, offering freelance services, becoming a personal trainer or launching an online business.
Whatever you're doing, becoming a sole trader can be one of the simplest ways to get started.
But there are still a few things you need to sort out.
What actually is a sole trader?
A sole trader is someone who runs a business personally rather than through a separate limited company.
You keep the business profits after tax, but you're also personally responsible for the business's debts and obligations.
You don't need to incorporate a company with Companies House just to become a sole trader.
Step 1 - Decide what you're going to do
Start with the basics.
What services or products will you sell? Who are your customers? How will you price your work?
You can trade under your own name or use a business name, subject to the relevant naming rules.
Before spending money on branding, check that your pricing makes sense and you understand your expected costs.
Step 2 - Register with HMRC when required
If your gross self-employment income exceeds £1,000 in a tax year, you will generally need to register for Self Assessment as a sole trader, although exceptions and other registration reasons apply.
The tax year runs from 6 April to 5 April.
If you need to register for a particular tax year, the usual notification deadline is 5 October after that tax year ends.
For example, someone who first needed to register for 2025/26 would normally have had until 5 October 2026.
Registration and submitting your tax return are two separate things.
Step 3 - Organise your money
We recommend keeping business income and spending separate from personal transactions.
A separate bank account can make bookkeeping much easier, even where a separate business account isn't legally required.
You'll want to track:
Customer sales and invoices
Payments received
Business expenses
Refunds
Platform or payment processing fees
Money owed by customers
If you sell through Shopify, Stripe, PayPal or online marketplaces, make sure you account for gross sales and relevant fees rather than treating every bank payout as your turnover.
Step 4 - Understand what you can claim
Allowable business expenses generally reduce the profit on which your tax is calculated.
Depending on your circumstances, examples may include business software, advertising, insurance, qualifying travel, equipment and certain home-working costs.
Personal spending is not automatically deductible just because you use the same bank account.
Step 5 - Put money aside for tax
Unlike an employee whose tax is normally deducted through PAYE, sole traders often need to budget for tax themselves.
Income Tax and National Insurance can depend on your profits and other income.
You may also have payments on account, meaning you pay towards the following year's tax bill in advance.
Our advice? Don't wait until January to see what's left in your account.
Step 6 - Check VAT and Making Tax Digital
The VAT registration threshold is currently £90,000 of taxable turnover over the relevant rolling 12-month period, with another test for expected turnover in the next 30 days.
Making Tax Digital for Income Tax is also being introduced in stages.
From April 2026, qualifying sole traders and landlords with income above the relevant £50,000 threshold entered the first phase, with further thresholds from April 2027 and April 2028.
You may need compatible software and additional digital reporting depending on your circumstances.
Step 7 - Keep proper records
Keep your invoices, receipts, business expenses and relevant statements organised throughout the year.
This will make it easier to prepare your tax return, check your profits and understand how your business is performing.
Ready to get started?
You don't need to know everything about tax before you launch.
You do need to understand your responsibilities and build some good habits from the beginning.
At Accounting On You, we help sole traders with bookkeeping, Self Assessment and ongoing accounting support.
You focus on getting your business going. We'll help with the numbers.
Explore our sole trader packages at www.accountingonyou.com.
General UK guidance. Registration and tax obligations depend on your individual circumstances.