Short answer: In your first year of self-employment you must register with HMRC by 5 October after the end of the tax year you started, keep records of income and costs, file your return by 31 January and pay your tax by the same date. Over £1,000 of trading income means you must report it.
Starting out on your own is exciting, and tax is usually the part people worry about most. The rules are simpler than they look. Follow this checklist through your first year and you will know what to do, when, and roughly how much to put aside.
1. Check you actually need to register
You must tell HMRC if your total trading income is more than the £1,000 trading allowance in a tax year. If you earn less, you may not need to register. Our guide do I pay tax on a side hustle? explains the test.
2. Register for Self Assessment on time
The deadline is 5 October after the tax year in which you started. For example, if you began trading in the 2026/27 tax year, register by 5 October 2027. Follow how to register for Self Assessment, then wait for your UTR (see how to find your UTR). If you already missed the date, read what to do.
3. Separate business and personal money
A separate bank account is not legally required for a sole trader, but it makes bookkeeping and tax much easier. Use it for all trading income and costs.
4. Keep records from day one
- Every sale, invoice and payment received.
- Every business expense with the receipt.
- Mileage logs if you use your own vehicle.
Keep them for at least 5 years after the 31 January filing deadline. If you are in Making Tax Digital, your records must be digital. See Making Tax Digital for Income Tax.
5. Learn what you can deduct
You pay tax on profit, not turnover. Allowable expenses include materials, software, insurance, professional fees, marketing, a share of home costs and business travel. See allowable expenses for the self-employed.
6. Know your tax and National Insurance
- First £12,570 of total income is tax-free (Personal Allowance).
- 20% Income Tax on profit up to £50,270, then 40%.
- Class 4 National Insurance at 6% on profit between £12,570 and £50,270 and 2% above.
Read Class 2 and Class 4 National Insurance explained and how much to set aside for tax.
7. Mark the key dates
| Date | What happens |
|---|---|
| 5 October | Register for Self Assessment (after your first tax year) |
| 31 October | Paper tax return deadline |
| 31 January | Online return deadline and balancing payment due |
| 31 July | Second payment on account, if you pay them |
See Self Assessment deadlines and what is payment on account to understand the first big bill.
8. Watch the Making Tax Digital thresholds
MTD for Income Tax applies from April 2026 if your qualifying income is over £50,000, from April 2027 over £30,000 and from April 2028 over £20,000. Even if you are below it, digital records are a good habit. Compare tools in best MTD software for sole traders.
9. Consider insurance, VAT and structure
Public liability insurance protects you if something goes wrong. VAT registration is compulsory if turnover passes £90,000. As you grow, compare sole trader vs limited company.
10. Decide who files your return
Many new sole traders file themselves, then move to an accountant once they want to be sure they have claimed everything. Our self-employed tax return service is a fixed fee agreed before we start, and you can see our prices any time. Not sure? Read do I need an accountant?
A worked first-year example
Leah starts as a freelance designer in July 2026 and earns £28,000 in the 2026/27 tax year, with £4,000 of allowable costs. Her profit is £24,000.
- Income Tax: (£24,000 minus £12,570) x 20% = £2,286.
- Class 4 National Insurance: £11,430 x 6% = £685.80.
- Total: £2,971.80, or about £248 a month.
She must register by 5 October 2027, file by 31 January 2028 and pay by the same date. Because her bill is over £1,000, she will also make a first payment on account of about £1,486 on 31 January 2028 and another on 31 July 2028, so her first January can feel like a double bill. Planning for it from the start avoids a cash crunch.
Your first tax year may not match your trading dates
Self-employment profits are taxed by tax year, which runs from 6 April to 5 April. If you start trading in the middle of a year, your first tax year is shorter than 12 months, and you are taxed on profits from your start date to the following 5 April. You can choose an accounting date that suits you, such as 31 March or 5 April, to keep things simple. Most new sole traders use a year end that matches the tax year because it makes reporting easier, especially under Making Tax Digital.
Start-up costs you can often claim
- Equipment and tools bought for the business, which may qualify for the Annual Investment Allowance or be treated as a straightforward expense.
- Website, branding and marketing costs.
- Professional fees such as accountancy, legal and insurance.
- Training that maintains or updates skills you already use in the trade.
- Costs you paid in the seven years before you started, if they were for the business and not otherwise claimed.
That last point catches people out: pre-trading expenses can usually be treated as if incurred on the day you started. Keep the receipts.
Using the trading allowance in your first year
If your first-year trading income is £1,000 or less, you do not need to register. If it is above £1,000, you can choose between deducting the £1,000 allowance or your actual expenses. Choose whichever gives the lower profit. For many new sole traders with real costs, actual expenses are better, but for someone with minimal costs the allowance is a simple choice.
Do you need to register for VAT?
VAT registration is compulsory when your taxable turnover in any rolling 12 months passes £90,000. You can register earlier voluntarily, which can make sense if your customers are VAT-registered businesses and you buy a lot of VAT-bearing equipment. Customers who are private individuals may not be able to reclaim VAT, so registering could make you more expensive to them. Check your turnover each month so you do not miss the threshold.
Tax and benefits: what else to watch
- Universal Credit. Self-employed income is assessed monthly, and the way profits are reported differs from tax, so keep clear records.
- Child Benefit. If your income is above the High Income Child Benefit Charge threshold, a charge can apply.
- Pensions. No employer pays into a pension for you, so set up your own, as contributions can reduce your tax bill.
- Insurance. Consider public liability, professional indemnity and income protection.
The five most common first-year mistakes
- Not registering in time, then facing penalties.
- Spending all the money and having nothing for the January bill.
- Forgetting to keep receipts.
- Mixing personal and business transactions.
- Not realising that payments on account will make the first bill larger.
Get help from day one
You can do it yourself, but many new sole traders prefer expert help for the first return, when the rules are least familiar. Our self-employed tax return service has a fixed fee, and you can get a quote before you start.
Frequently asked questions
When do I need to register as self-employed?
If your trading income is above £1,000 in a tax year, register for Self Assessment by 5 October after the end of the tax year in which you started.
What deadlines does a new sole trader need to know?
5 October to register, 31 January for your online return and tax bill, and 31 July for the second payment on account when applicable.
How long should I keep self-employed records?
At least 5 years after the 31 January filing deadline for that tax year.
Do I need a separate bank account as a sole trader?
No, it is not a legal requirement, but a separate account makes bookkeeping and tax much easier.
Do I need an accountant in my first year?
You do not have to, but many new sole traders use one to make sure they claim all allowable expenses and file correctly.
Want an accountant to do it for you?
Our qualified accountants prepare and file your return for a fixed fee, agreed before we start. Get a free quote, see our prices or call 0203 4411 258.
Last reviewed 28 October 2026. This guide is general information for UK taxpayers and is not personal tax advice. Scottish income tax rates differ from those shown.
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Accotax is a London firm of qualified accountants and tax consultants, on the ICAEW approved employers list. Our team prepares Self Assessment, landlord and company tax returns every day, and each guide is checked against GOV.UK before it is published and updated every tax year.
Reviewed and kept up to date by our expert team of ICAEW, ACCA and AAT qualified accountants. Last updated . This page is general guidance, not personal advice.
