If you’ve made the decision to go it alone and set up as a self-employed sole trader, you probably have a lot on your plate.
There are lots of considerations to make, and so, naturally, it’s easy to overlook things. One thing you may have overlooked is whether or not you would benefit from hiring an accountant.
To help you decide, we’ll break down the process of becoming a sole trader, your legal responsibilities, and how an accountant might help.
What is a sole trader?
Let’s start with the basics. A sole trader is just someone who runs their own business as an individual.
There’s no legal distinction between you and the business with this type of structure, so you’re personally liable for anything that happens. This is both good and bad – depending on your circumstances.
Considerations about being a sole trader
On the one hand, your personal assets might be at risk if the business struggles because there’s no distinction beween you and your work. On the other, you get to keep any profits for yourself once you’ve paid income tax and National Insurance. But, you’ll be taxed on them even if you leave them in the business.
It’s relatively easy to get yourself set up as a sole trader, with fewer rules and paperwork than if you were to use a different business structure.
Do I need to set up as a sole trader?
It depends! If you earn less than the Trading Allowance (£1,000) in self-employed income, you might not need to tell HMRC or pay tax on this. You can claim the Trading Allowance even if you have other sources of income, too.
If you do need to set up a sole trader business, make sure you inform HMRC by 5th October in your second tax year. A tax year runs from 6th April to 5th April the following year.
How do I pay tax as a sole trader?
Right, so… You’ve set up as a sole trader and you get more than £1,000 of trading income in a tax year. Now what?
Well, you’ll need to start submitting tax returns to HMRC so you can pay income tax and National Insurance on the profit you make.
What sort of tax return do sole traders need?
This depends on how much you make in total from self-employment and/or property income in a tax year. You’ll normally start by submitting Self Assessment tax returns.
Over time, you might also need to consider Making Tax Digital (MTD) Income Tax. As it continues to roll out, MTD Income Tax will gradually replace Self Assessment for some people.
Those affected will need to keep their income tax records digitally, and share this information with HMRC on a more frequent basis using compliant software.
- You’ll use MTD to report your tax from April 2026 if you earned more than £50,000 as a sole trader and/or rental income in the 2024/25 tax year
- In April 2027, the earnings threshold to start complying reduces to £30,000 earned in the 2025/26 tax year
- From April 2028, it’s £20,000 for the previous tax year
How do I make a tax payment?
HMRC will calculate your tax bill once you submit your return. There are many methods you can use to pay, including HMRC online, Direct Debit or bank transfer. If you work for an employer and have a sole trader business on the side, you may be able to pay your self-employed tax bill through your PAYE tax code.
The deadline to pay is 31st January each year (the same as the deadline to submit your tax return for the year). If your tax bill exceeds £1,000, you’ll need to make ‘Payment on Accounts’ – which essentially splits your tax bill in two halves. The second tax payment deadline is 31st July.
What are my other responsibilities?
You want to . This will be essential in helping you fill out your tax return, and will also help you to claim tax relief without forgetting about any allowable expenses.
Do I need an accountant?
Having an accountant can be extremeley reassuring. They’ll:
- Help you set up processes for keeping clear, up-to-date financial records – known as bookkeeping
- Advise how to optimise any tax reliefs and allowances, and make sure you’re claiming any allowable expenses
- Suggest software you can use for bookkeeping, or for MTD compliance if this applies to you
There are lots of different types of accountancy services available, so take your time to understand exactly what sort of support you need, and make sure your accountant is appropriately qualified.
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.
