Registering as self-employed takes about ten minutes. Understanding what you have just signed up for takes rather longer. There is no pay-slip, no tax deducted at source, and nobody sends you a bill until you file a return telling HMRC what you owe. Registering as self-employed is the easy part.
This guide covers the nine things that matter in your first year as a sole trader.
What are the key dates after registering as self-employed?
The short answer: 5 October to notify HMRC, 31 January to file and pay, 31 July for the second payment on account.
The tax year runs from 6 April to 5 April. Started trading in the year that ended 5 April? Tell HMRC by 5 October. Miss it and you face a “failure to notify” penalty, based on the tax still outstanding.
Your online return and your payment are both due by 31 January. File by 30 December and owe under £3,000? You can ask HMRC to collect it through your PAYE code instead.
Late filing penalties are automatic and apply even if you owe nothing. It is £100 immediately. Then £10 a day after three months, up to £900. Then 5% of the tax due or £300 at six months, and again at twelve. Late payment is separate: 5% after 30 days, six months and twelve months, plus interest.
Which expenses can I claim when self-employed?
The short answer: anything incurred wholly and exclusively for the business, with the private share stripped out.
Allowable expenses cut your taxable profit. Turnover of £40,000 with £10,000 of allowable costs means tax on £30,000. Common ones include stationery, phone and broadband, business travel, stock and subcontractors. Also insurance, bank charges, advertising, professional fees, and training that updates skills you already have.
The exclusions catch people out more than the inclusions. Client entertaining is never allowable. Ordinary clothing is not allowable even if you bought it specifically for work. Fines and parking tickets are out. So is commuting to a regular workplace, and training that teaches an entirely new skill.
Where something has both business and private use, claim the business share only. HMRC’s own example is a £200 phone bill containing £70 of business calls, which produces a £70 claim.
There is also a £1,000 trading allowance. Earn less than that and you need not register or declare it. Earn more and you may deduct the £1,000 instead of your real expenses. That only helps if your actual costs are lower. You cannot use both, and you cannot claim capital allowances alongside it.
How long do I need to keep my records?
The short answer: five years after the 31 January filing deadline for that tax year.
A 2026/27 return filed by 31 January 2028 means keeping the underlying records until January 2033. Keep sales invoices numbered in sequence and receipts for every business cost. Add VAT records if registered, and PAYE records if you employ anyone. Note any other income too: employment, savings, dividends or property.
Photographs of receipts are fine; HMRC accepts digital copies. The more valuable habit is opening a separate business bank account. Sole traders do not legally need one. But mixing personal and business transactions turns a first tax return from an hour’s work into a day of archaeology.
What are payments on account?
The short answer: advance instalments towards next year’s tax, and the reason a first January bill is bigger than expected.
Owe more than £1,000 and HMRC asks for two payments towards the following year. Each is half the previous year’s liability, due 31 January and 31 July.
In your first year this arrives without warning. A first tax bill of £3,000 means paying £3,000 on 31 January plus £1,500 on account. That is £4,500 at once. Another £1,500 follows on 31 July. People budget for the first figure and not the second.
You are outside the system if last year’s bill came to under £1,000. The same applies if more than 80% of your tax came out at source. Falling profits? You can apply to reduce the payments. Cut them too far and HMRC charges interest on the difference.
How much should I set aside for tax?
The short answer: 25–30% of everything you are paid if you will stay basic rate, and 40% if profits will reach higher rate.
For 2026/27, the first £12,570 of profit is covered by the personal allowance. Above that, income tax runs at 20% to £50,270, then 40% to £125,140. Class 4 National Insurance adds 6% on profits from £12,570 to £50,270, then 2% above. Class 2 is treated as paid once profits reach £7,105, so most people pay nothing extra for it.
The practical method matters more than the percentage. Move the money to a separate savings account the day each invoice lands. Not at month end. In year one, add a little more. The payment on account lands on top of the bill you expected.
What can I claim for working from home and using my car?
The short answer: a proportion of household costs, and 55p per business mile for the first 10,000 miles.
For home working, you have two options. Calculate the business proportion of heating, electricity, council tax, rent or mortgage interest and broadband — usually by rooms and hours. Or use the flat rate, available if you work 25 or more hours a month from home. That is £10 a month for 25–50 hours, £18 for 51–100, and £26 for 101 or more.
For vehicles you can claim the business share of actual running costs, or use HMRC’s mileage rates. For 2026/27 that means 55p per mile for the first 10,000 business miles, then 25p. Motorcycles get 24p, bicycles 20p.
Two things to note. The car and van rate rose from 45p to 55p for this tax year, so a lot of guidance still online is out of date. And once you use the mileage method for a vehicle, you must stick with it for as long as you own it. Keep a log of date, journey, purpose and miles. Without one, you cannot defend the claim.
When do I need to register for VAT and Making Tax Digital?
The short answer: VAT at £90,000 of turnover, and Making Tax Digital is already live and dropping to £20,000 by 2028.
You must register for VAT once taxable turnover passes £90,000 in any rolling 12-month period. The same applies if you expect to pass it within 30 days. The rolling period is the trap — it is not your accounting year. You have 30 days from the end of the month you crossed it. Register late and you pay over VAT you never charged your customers.
Making Tax Digital for Income Tax replaces the single annual return with quarterly digital updates through compatible software. It started on 6 April 2026 for anyone with qualifying income over £50,000 in 2024/25. The threshold drops to £30,000 from April 2027, based on 2025/26 income. It falls again to £20,000 from April 2028, based on your 2026/27 figures.
Qualifying income means gross self-employment and property income combined — turnover, not profit. This year’s figures decide whether MTD catches you in 2028. Worth knowing, even if the threshold looks distant.
What insurance do I need when self-employed?
The short answer: employers’ liability is a legal requirement if you employ anyone; the rest depends on your work and your clients.
Employers’ liability cover becomes compulsory, with limited exceptions, the moment you take on staff. Public liability is not a legal requirement. But most clients and venues expect it where the public or a client’s premises are involved. Professional indemnity is standard for consultancy, advisory and creative work. Several regulated professions require it.
Two more are easy to overlook. Personal motor policies usually exclude business use. Tell your insurer what the vehicle now does. And self-employment comes with no sick pay, which is what income protection exists for.
Premiums for genuine business cover are an allowable expense. We are accountants, not insurance brokers. Speak to a broker about cover levels — before your first client, not after.
What mistakes do people make after registering as self-employed?
The short answer: spending the tax money, forgetting the payment on account, and keeping no mileage log.
The costly ones repeat year after year. Missing the 5 October notification deadline. Budgeting for the tax bill, but not the payment on account sitting on top. Running personal and business money through one account, then failing to evidence a claim. Making a mileage claim with nothing to support it. Claiming client entertaining, which is never allowable. Missing the VAT threshold by measuring turnover over the accounting year instead of a rolling twelve months. And assuming turnover is profit. Tax applies to profit, but the VAT and MTD thresholds both use turnover.
Getting your first year right
Most of what goes wrong in the year after registering as self-employed is a timing problem rather than a tax one. The rules themselves are manageable. The damage comes from the January bill nobody budgeted for, or the receipt nobody kept.
Cubed Consultancy is a firm of chartered accountants in Harpenden, working with sole traders and owner-managed businesses across Hertfordshire. We also hold FCA authorisation for financial planning. That means one team looks at the tax position and the longer-term picture together. If you have just registered as self-employed, book a free 15-minute consultation and we will tell you what to set up now.
Do I need an accountant as a sole trader?
No, there is no legal requirement. Whether it pays depends on how complex your affairs are, and what your time is worth. Most people find the value is in the planning rather than the filing.
What is a UTR number?
A Unique Taxpayer Reference is the ten-digit number HMRC issues when you register for Self Assessment. You need it to file a return, and it stays with you for life.
Can I be employed and self-employed at the same time?
Yes, and it is common. PAYE handles your employment income as usual. You then declare self-employed profits separately on your tax return. The personal allowance is only given once across both.
When should I consider a limited company instead?
It depends on profit levels, whether you reinvest or draw everything out, and your appetite for extra filing. There is no single threshold that makes it automatically worthwhile.
General information, not advice.
