What it means to be a sole trader

When you work for yourself as a sole trader, you are the business. There is no legal separation between you and your trading name. That means you keep all the profits after tax, but you also carry full responsibility for getting your tax affairs right. You must register with HMRC as soon as you start trading, usually by 5 October after the end of your first tax year. The tax year runs from 6 April to 5 April. Registration is straightforward, but the obligations that follow are ongoing.

You pay Income Tax on your profits and Class 2 and Class 4 National Insurance. Class 2 is now treated as paid if your profits exceed the Small Profits Threshold, but you may still need to pay Class 4. The figures change, so always check the current rates on GOV.UK. What does not change is the need for accurate records and timely filing.

Record keeping: your first line of defence

Good records are not about paperwork for its own sake. They are the evidence that supports every figure on your tax return. HMRC can ask to see them, usually up to five years after the 31 January filing deadline. If you cannot produce them, you may lose the right to claim expenses or face penalties. Keep the following:

• Sales invoices, receipts, and bank statements showing money coming in
• Purchase receipts, supplier invoices, and bank statements showing money going out
• Mileage logs if you use your own vehicle for business travel
• Bank and credit card statements for any business account
• Correspondence with HMRC, including letters and emails

Digital records are perfectly acceptable. A simple spreadsheet works, as does accounting software. The key is to record transactions as they happen, not in a panic the week before the deadline. Keep business and personal spending separate. A dedicated business bank account makes that easier, even if you are a sole trader.

Allowable expenses: what you can legitimately claim

You only pay tax on your profits, not your total income. Profit is your income minus allowable expenses. An allowable expense is a cost you incur wholly and exclusively for the business. Common examples include:

• Office supplies, stationery, printing, and postage
• Phone and internet bills, claimed in proportion to business use
• Travel for business, including fuel, parking, train fares, and accommodation
• Professional fees, insurance, and bank charges
• Marketing, website hosting, advertising, and business cards
• Tools, equipment, and protective clothing

If you work from home, you can claim a proportion of household costs such as heating, electricity, and broadband. HMRC offers simplified expenses for homeworking, vehicles, and living on site. These use flat rates instead of detailed calculations. Keep every receipt. If you are unsure whether something is allowable, ask before you claim it. Getting this wrong is one of the most common reasons for an HMRC enquiry.

Key deadlines and payment dates

Missing deadlines triggers automatic penalties, even if you have no tax to pay. The main dates for sole traders are fixed and predictable. Put them in your diary now:

• 5 October after the end of the tax year: deadline to register for Self Assessment if you have not done so before. For the 2024/25 tax year, that is 5 October 2025.
• 31 October following the tax year: deadline for paper tax returns.
• 31 January following the tax year: deadline for online tax returns and for paying any tax owed. This is also the first payment on account for the next year.
• 31 July: second payment on account for the current tax year.

Payments on account are advance payments towards your next tax bill. They are based on your previous year's liability. If your income drops, you can ask HMRC to reduce them. Do not simply ignore them. If you miss the 31 January deadline, you face a £100 penalty even if you owe nothing. Further penalties accrue after three, six, and twelve months. Interest also runs daily. Set reminders and put money aside monthly. A separate tax savings account helps you avoid a nasty shock.

When to call in a local accountant

You can file your own tax return, and many sole traders do. But there comes a point where professional help saves more than it costs. Consider seeking advice if:

• Your turnover is growing and you are unsure about expenses or VAT registration
• You have multiple income streams, rental income, or foreign income
• You are thinking about incorporating as a limited company
• You receive a letter from HMRC that you do not understand
• You have missed a deadline or made a mistake on a previous return
• You simply want someone to check your figures before you submit

A local accountant knows the area, understands your market, and can meet you face to face. They can also advise on Making Tax Digital, which is being phased in for sole traders. Good advice is an investment, not an expense. It buys you peace of mind and often pays for itself through accurate claims and avoided penalties.