What a sole trader is, how to register with HMRC, and the income tax, National Insurance, VAT and records you need to get right — updated for 2026/27.
A sole trader is a self-employed person who runs their business as themselves rather than through a company. There is no legal separation between you and the business: you keep all profits after tax and are personally responsible for any business debts. It is the simplest and most common way to be self-employed in the UK, and you register as a sole trader by registering for Self Assessment with HMRC.
Whether you are freelancing, contracting, selling online or running a trade, becoming a sole trader is usually the quickest way to start. This guide explains, in plain English, exactly what a sole trader is, how to register with HMRC, the tax and National Insurance you pay for 2026/27, when VAT applies, the records you must keep, and when it is worth switching to a limited company.
Sole trader definitions all point to the same thing: one individual who owns and runs an unincorporated business. You and the business are the same legal entity, which is the essence of the sole trader definition. The defining features are:
Sole traders, self-employed people and partnerships all report via Self Assessment; the difference is that a partnership shares the business between two or more people. If you want limited liability and, at higher profits, greater tax efficiency, a limited company may suit you better — covered below.
You register as a sole trader by registering for Self Assessment with HMRC. You must register once your self-employment income passes £1,000 in a tax year, and the deadline is 5 October after the end of that tax year. Registration is free and done online through your Government Gateway account.
Here is how to register as a sole trader, step by step:
Deadline in practice: if you started trading in the 2026/27 tax year (6 April 2026 to 5 April 2027), you must register by 5 October 2027 and file your first return by 31 January 2028. Registering late risks penalties, so it is best to register as soon as you are trading.
See how AccTek handles sole trader accounts & Self Assessment →
Sole traders pay income tax and Class 4 National Insurance on business profits (income minus allowable expenses) through Self Assessment. For the 2026/27 tax year:
Income tax on profits
National Insurance
On £40,000 of profit: income tax is 20% of (£40,000 − £12,570) = £5,486; Class 4 NI is 6% of the same band = £1,645.80. Total roughly £7,132, leaving about £32,868 — before any payments on account. Your figures will vary with expenses and other income.
Payments on account: once your Self Assessment bill passes £1,000, HMRC usually asks for two advance payments towards next year’s tax — due 31 January and 31 July — each 50% of your prior year’s liability. Budgeting for these avoids a cash-flow shock in your second year. Rates stated are for 2026/27 and depend on your circumstances.
VAT registration is mandatory once your taxable turnover exceeds £90,000 in any rolling 12-month period (2026/27). You must register within 30 days of the end of the month you cross it. Below £90,000 you can register voluntarily.
The £90,000 threshold is measured on a rolling 12 months, not your tax year, so check your trailing 12-month turnover at each month-end. There is also a forward-look test: if you expect to exceed £90,000 in the next 30 days alone, you must register immediately. Voluntary registration can pay off if your customers are VAT-registered businesses or you have significant VAT on costs to reclaim.
Good sole trader bookkeeping is the difference between a stressful January and a return that files itself. You must keep records of all business income and expenses, and retain them for at least five years after the 31 January submission deadline. Sensible practice:
Making Tax Digital for Income Tax (MTD ITSA) is now arriving for the self-employed. It applies from April 2026 to sole traders and landlords with qualifying income over £50,000, and from April 2027 for income over £30,000. Affected sole traders must keep digital records and send quarterly updates to HMRC using compatible software. Our Making Tax Digital 2026 guide explains who is in scope and by when.
Being a sole trader is simpler, cheaper and more private to run. A limited company adds limited liability (your personal assets are protected) and can be more tax-efficient once profits grow, because you can take a mix of salary and dividends and pay corporation tax rather than income tax on retained profit. The right choice depends on your profit level, how much you need to draw, your appetite for admin, and your risk exposure.
There is no single crossover number — it is a modelling question, not a rule of thumb. Our dedicated comparison walks through it: Sole trader vs limited company →
What is a sole trader?
A sole trader is a self-employed individual who runs their business as themselves rather than through a company. You keep all profits after tax and are personally responsible for any business debts — the simplest way to be self-employed in the UK.
How do I register as a sole trader?
Register for Self Assessment with HMRC: set up or sign in to a Government Gateway account, complete the self-employment registration, and HMRC issues your Unique Taxpayer Reference (UTR). You must register once income passes £1,000 in a tax year, by 5 October after that tax year ends.
Do I need to register if I earn under £1,000?
No. The £1,000 trading allowance means self-employment income of £1,000 or less in a tax year does not need to be registered or reported. Above £1,000 you must register as a sole trader.
What tax does a sole trader pay in 2026/27?
Income tax on profits above the £12,570 personal allowance (20% / 40% / 45%), plus Class 4 National Insurance at 6% between £12,570 and £50,270 and 2% above. Class 2 is no longer compulsory; profits above the £7,105 small profits threshold are treated as paid for State Pension purposes.
Should I be a sole trader or a limited company?
Sole trader is simpler and cheaper; a limited company gives limited liability and can be more tax-efficient once profits grow. It depends on profit level, drawings and risk — AccTek models both with your actual figures.
AccTek registers you with HMRC, keeps your bookkeeping MTD-ready, and files your Self Assessment — fixed monthly fees from £19.99. When the numbers say incorporate, we model it and handle the switch.
This guide is for general informational purposes only and does not constitute tax or legal advice. Tax rules change and individual circumstances vary — please consult AccTek or a qualified adviser before acting. Rates and thresholds stated are for the 2026/27 tax year.
Official guidance
For the Government’s official steps, see Set up as a sole trader (GOV.UK) and Register for Self Assessment. AccTek Ltd is an independent accountancy firm and is not affiliated with HMRC or GOV.UK.
AccTek is a member firm of the Institute of Certified Practising Accountants (ICPA). Our accountants have a wide range of qualifications and accreditations from trusted professional bodies such as the AAT, ICPA, and ACCA.
