What a sole trader is
A sole trader is simply a self-employed person who runs a business as an individual. You are the business: there is no legal separation between you and it. It is the simplest and cheapest business structure available in the UK.
You do not need to register at Companies House. You do not need a business bank account (though it helps). You do not need a formal business name. You just register with HMRC, keep records, and file a Self Assessment return each year.
5 October
HMRC registration deadline
Register by 5 October after the end of the tax year in which you started trading. Register earlier — you need a UTR before you can file.
10 days
UTR arrives within
Your Unique Taxpayer Reference comes by post from HMRC after you register. Allow up to 10 working days.
6 years
Keep records for
HMRC can investigate tax years up to 6 years back. Keep all income and expense records for at least this long.
45p/mile
HMRC mileage rate (first 10,000 miles)
Verify the current approved rate at GOV.UK — rates have been stable for years but can change.
How to register with HMRC
Registration is online, free, and takes around 10 minutes. You need a Government Gateway account. Register at: https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed
The deadline: you must register by 5 October in the second tax year after you started trading. The UK tax year runs 6 April to 5 April. So if you started in November 2025 (tax year 2025/26), you must register by 5 October 2026 at the latest.
Do not wait that long. Register as soon as you start. Late registration risks a penalty, and more practically, you need your UTR before you can file a return, and it takes up to 10 working days to arrive by post.
What you get when you register:
- A Unique Taxpayer Reference (UTR): a 10-digit number HMRC uses to identify you for tax purposes. It appears on all HMRC letters and is required to file returns. Keep it safe, it does not change.
- Enrolment for Self Assessment: you will need to file an annual return covering your income and expenses.
- Registration for National Insurance: specifically, Class 2 NI. The current status of Class 2 has been subject to legislative changes, verify the current position at GOV.UK: https://www.gov.uk/self-employed-national-insurance-rates
What a UTR is not: it is not the same as your National Insurance number. Your NI number is a letter-number-letter code you have had since before you started working. Your UTR is a separate 10-digit tax reference issued when you register for Self Assessment.
Sole trader vs limited company — honest comparison
| Factor | Sole Trader | Limited Company |
|---|---|---|
| Personal liability | Unlimited, your personal assets are at risk if the business incurs debts | Limited to your share capital, personal assets are protected in most cases |
| Tax on profits | Income tax at your personal rate on all profits above the personal allowance | Corporation tax on company profits; you pay income tax on salary and dividends separately |
| Setup | Free, immediate, register with HMRC online in 10 minutes | £50 to register at Companies House, plus HMRC registration, takes a few days |
| Ongoing admin | Annual Self Assessment return only | Annual accounts, corporation tax return, confirmation statement, directors' duties |
| Privacy | No public record of your income or business details | Directors' names and company accounts are publicly visible on Companies House |
| When to consider switching | Sole trader is right for most people starting out | Worth reviewing when consistent profits reliably exceed £30,000–£35,000 per year, but this is a rule of thumb, not a cliff edge. Ask an accountant. |
Record-keeping — what HMRC requires
You must keep records of your business income and expenses for at least 6 years. HMRC can investigate past tax years up to 6 years back, so you need records to support any return you have filed.
What to keep: all invoices you have raised, receipts for all business expenses, bank statements, any contracts or agreements. You do not need a separate business bank account, but it makes life considerably easier to separate business and personal transactions.
Digital or paper: both are fine. HMRC does not require digital records for sole traders below the VAT threshold (Making Tax Digital for income tax is being introduced in phases, check GOV.UK for the current rollout timetable). Many people use a simple spreadsheet. Others use free bookkeeping software such as Wave or Zoho Books (free tier). Both are adequate for straightforward sole trader businesses.
What happens if you lose records: HMRC may estimate your income if you cannot produce records during an investigation. That estimate is usually higher than reality. Keep everything.
Allowable expenses — the ones most people miss
You can deduct expenses that are wholly and exclusively for the purposes of your trade. That phrase is the test. If there is a personal element, you generally cannot claim the full amount.
Home office: two methods available.
The flat rate method: a fixed monthly deduction based on hours worked from home each month. Verify the current HMRC flat rate figures at GOV.UK, they can change: https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home
The actual proportion method: you work out what proportion of your home costs relate to business use, based on the number of rooms used for work and the hours used. More accurate but more paperwork.
Most people use the flat rate. It is simpler and usually sufficient.
Mileage: you can claim 45p per mile for the first 10,000 business miles in a tax year, then 25p per mile above that. Verify the current HMRC approved mileage rates at GOV.UK: https://www.gov.uk/expenses-and-benefits/business-travel-mileage. Keep a mileage log, date, destination, purpose, miles. If you claim mileage, you cannot also claim capital allowances on the same vehicle. It is one or the other.
Equipment: computers, phones, cameras, tools, anything used wholly for the business. If a piece of equipment is also used personally, you can only claim the business proportion.
Professional subscriptions: membership fees for trade bodies or professional organisations that relate to your work. HMRC publishes a list of approved organisations.
Phone: the business proportion of your mobile or home broadband bill. If 70% of your calls are business-related, you can claim 70%.
Professional indemnity insurance: fully deductible if it is for business purposes.
The test to apply: ask yourself whether you would incur this expense if you were not running the business. If the honest answer is no, it is a business expense. If the answer is "partly", claim the business proportion only.
The £1,000 trading allowance
If your total self-employment income in a tax year is under £1,000, you do not need to register with HMRC or file a Self Assessment return. The trading allowance covers it. This is useful for small side income, occasional freelance work, or hobby sales.
Once your income exceeds £1,000, the trading allowance does not apply, you must register and file. You also cannot use the trading allowance and claim actual business expenses in the same year. It is one or the other.
More detail at GOV.UK: https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
Get a plain-English guide to self-employment tax — sent once, no noise.
Common questions about sole trader registration
Do I need to register with HMRC immediately when I start trading?▾
The legal deadline is 5 October in the second tax year after you started trading. But register as soon as you start. You need a UTR (Unique Taxpayer Reference) before you can file a return, and it takes up to 10 working days to arrive by post. Waiting until the deadline risks having no UTR when you need it.
What is the difference between a UTR and a National Insurance number?▾
Your NI number is a letter-number-letter code you have had since your first job. It identifies you for National Insurance purposes. Your UTR is a 10-digit number HMRC issues when you register for Self Assessment. You need your UTR to file tax returns. The two are completely separate, registering as self-employed does not change your NI number.
Can I be employed and a sole trader at the same time?▾
Yes. Many people have a main job and run a self-employed side activity alongside it. Your employer deducts tax on your employment income via PAYE. You report your sole trader income separately on a Self Assessment return each year. If your self-employment income is under £1,000, the trading allowance may mean you do not need to file at all.
What happens if I miss the 5 October registration deadline?▾
HMRC may charge a penalty for late registration. The size of the penalty depends on how long you were late and whether HMRC believes it was deliberate. Register as soon as you realise you have missed it, voluntary disclosure generally results in lower penalties than HMRC discovering it themselves.
Do I need a separate business bank account as a sole trader?▾
No, it is not a legal requirement. But it is strongly recommended. Mixing business and personal transactions in one account makes bookkeeping considerably harder and increases the risk of missing expense claims or including personal spending in your accounts. Many banks offer free business accounts.
Can I claim my home internet bill as a business expense?▾
You can claim the business proportion. If you use the internet 50% for work and 50% personally, you can claim 50% of the cost. Keep a reasonable basis for whatever proportion you claim, HMRC may ask you to justify it.
What records do I need to keep if I am paid in cash?▾
Exactly the same records as for any other payment: what the income was for, the amount, the date, and ideally who paid you. HMRC does not treat cash differently from bank transfers, the obligation to declare income applies regardless of how you were paid. Keep a log of every cash receipt.
When should I consider switching to a limited company?▾
The standard guidance is to review this when your consistent annual profits exceed around £30,000 to £35,000. At that level, the tax saving from extracting income as dividends (taxed at a lower rate than income tax) can outweigh the additional administrative burden. But this is a rule of thumb, not a fixed threshold. Talk to an accountant before making the switch.
Explore related pages
- →Self-Employed overviewBack to the self-employed overview — tax, NI, VAT, and status
- →Self-Employed TaxHow self-employed income tax works, expenses in detail, and payments on account
- →Self AssessmentFiling your self-assessment return — deadlines, penalties, and the payments on account shock
- →National InsuranceNI classes for self-employed people and why they matter for your state pension
- →NI numberYour National Insurance number explained — how to find it, and how it differs from your NI record