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Need a sole trader checklist? We’ve got you covered!
First things first: terms like “sole trader,” “freelancer,” and “self-employed” are often used interchangeably, and for HMRC purposes they generally mean the same thing – you are self-employed. We use “sole trader” in reference to our self-employed clients: you run, own, and operate your business yourself.
We know starting out can feel overwhelming. That’s why we’ve put together this updated checklist – to help you get started on a solid footing.
1. Register with HMRC as self-employed (and for Self Assessment)
If you have never submitted a Self Assessment before, you’ll need to register as self-employed with HMRC (under Self Assessment). You must register by 31 October following the end of the tax year in which you became self-employed.
For example, if you started on 15 January 2025 (2024/25 tax year), you must register by 31 October 2025.
You can find out how to register as self-employed with HMRC here.
2. Understand the taxes and NICs you may need to pay
Income Tax
- For 2025/26, the Personal Allowance is £12,570 – profits up to this amount are tax-free.
- Beyond that: 20% tax on profits from £12,571 to £50,270; 40% on profits above that level (up to £125,140); and 45% on amounts over £125,140.
- If your income exceeds £100,000, your personal allowance is gradually withdrawn (i.e. for every £2 above £100,000, you lose £1 of your allowance. This means once your income exceed £125,140, you will have no personal allowance).
National Insurance Contributions (NICs)
Recent reforms have changed how NIC works for the self-employed:
- From 6 April 2024, self-employed individuals are no longer required to pay Class 2 NIC if their profits are above the “small profits threshold” (for the 25/26 tax year this is £6,845). Instead, they are treated as though they have paid it, which preserves their entitlement to state benefits (e.g., State Pension and Maternity Allowance).
- Those with profits between the small profits threshold and the lower profits (or “starting”) limit still receive a National Insurance credit to maintain their benefit record, without paying any National Insurance.
- If your profits are below the small profits threshold, you can opt to pay Class 2 voluntarily (you may wish to do this to preserve benefit entitlements).
- Class 4 NIC is paid on profits over £12,570. For the 25/26 tax year, 6% is paid on profits between £12,570 and £50,270, and at 2% on profits above £50,270.
- Voluntary Class 2 NIC’s weekly rate is increasing – from £3.45 to £3.50/week from April 2025.
Payments on Account
If your tax bill (excluding Class 4 NIC) exceeds £1,000 in a tax year, you may be required to make payments on account towards the next year’s tax liability — usually in two instalments (by 31 January and 31 July). It’s good to be aware of this in advance. You can read more about Payments on Account in our FAQ here.
3. Open a separate business bank account (or use a dedicated account)
It’s not legally required, but separating business and personal finances makes your bookkeeping much easier. Use a spare personal account or open a dedicated sole trader account. We often recommend Starling (or similar digital banks) because of their ‘Spaces’ which enable you to siphon off funds to save easily for tax bills.
4. Decide how to track finances & record keeping
You’ll want a solid system to capture all income and expenses, as well as receipts and invoices. Options include:
- Spreadsheets (Excel, Google Sheets) – good for simple setups
- Accounting software – more powerful: Xero, QuickBooks, Coconut (or similar) – please see note re MTD below
- Some banks offer built-in expense tracking and receipt capture (Starling, Monzo, Revolut, etc.)
Also consider Making Tax Digital (MTD) rules: depending on your turnover or future plans, you may eventually need to maintain digital records and file via compatible software. We have written a handy guide to MTD which you can find here.
5. Consult with an accountant (or tax adviser)
It’s often worth booking a free or low-cost consultation to see whether working with an accountant makes sense – especially if your business will grow, you plan to take on a limited company later, or your finances are more complex. They can guide you through tax planning, allowable expenses, and future structure decisions. You may also feel more reassured and supported with the help of a professional.
6. Understand allowable business expenses
You can only deduct expenses that are incurred “wholly and exclusively” for the business. Anything with personal use is generally not allowable. Some expense types (e.g. travel, meals, entertainment) have additional rules and caps. It’s wise to check HMRC’s guidance or your accountant’s advice. (We have a blog here)
7. What next?
Work through the checklist above to lay strong foundations for your business. If you have more detailed questions – or you’d like to get started with us – you can book a Discovery Call here. And follow us on Instagram / social media for more tips and behind-the-scenes content.
