There’s a moment every freelancer or entrepreneur experiences. It’s not when you buy your first domain or design your logo.
It’s when someone pays you real money for what you can do – and suddenly, this isn’t just a hobby anymore.
It’s a business.
And in the UK, the simplest way to turn that into something official is by becoming a sole trader.
But being a sole trader isn’t just a legal step – it’s a mindset shift from “I do this when I have time” to “I run a business.”
Let’s break it down – without the jargon overload.
Being a Sole Trader Means the Business Is You
No board meetings. No shareholders.
No complicated legal structure.
Just you, running your business with full control – and full responsibility.
If a limited company is like owning a separate entity, being a sole trader is more personal. Your business isn’t something you own on paper; it’s essentially an extension of you. The money it earns is your money. The decisions, risks, and rewards – all yours.
It’s simple. It’s flexible. And for thousands of freelancers, creators, and small business owners in the UK, it’s the perfect start.
Okay, But What Do You Actually Do for Tax?
Running a business is fun – until tax season arrives with a clipboard and judgmental eyebrows. Here’s the reality: as a sole trader, you pay tax on profit, not total sales. That means if you earn
£50,000 and spend £15,000 running your business, you’re taxed on £35,000.
You’ll also need to:
- Keep proper records of income & expenses
- File a Self-Assessment tax return every year
- Pay Income Tax + National Insurance (because adulting)
And no, you don’t pay yourself a salary.
You simply take money out of the business – your profit is your income.
After You Register – What Actually Happens?
Once you register for Self-Assessment, HMRC sends you:
A Unique Taxpayer Reference (UTR)
This is your official business identity in their system.
- HMRC sends you a UTR (Unique Taxpayer Reference) – your business identity in the system
- You track your income and expenses (ideally with accounting software)
- Each year file your tax return by 31 January
- Pay what’s owed
And if your bill is over £1,000?
HMRC asks you to make Payments on Account—essentially paying next year’s tax in advance.
Think of it as a subscription, but instead of Netflix original films, you get… receipts.
So How Much Tax Do Sole Traders Actually Pay? (2025–26)
Let’s make the numbers human.
If you’re earning under £12,570, you pay zero income tax.
When you start earning more, tax kicks in gradually – like the government’s way of saying
congrats on your financial success, now hand it over.
Income Tax Bands:
| Profit Range | Tax Rate |
| £0 – £12,570 | 0% |
| £12,571 – £50,270 | 20% |
| £50,271 –
£125,140 |
40% |
| £125,140+ | 45% |
Then there’s National Insurance (NIC) – the UK’s second tax that pretends not to be a tax:
- 6% on profits between £12,570–£50,270
- 2% above £50,270
- Class 2 voluntary if you want pension benefits but have low profits
The more you earn, the more responsibility you carry – but also the more rewarding it becomes.
Quarterly Tax Reporting Is Coming (And It’s a Big Shift)
Starting April 2026, many sole traders will move to Making Tax Digital (MTD). Meaning… instead of one big return at the end of the year, you file:
✔ 4 quarterly submissions
✔ 1 final annual declaration
✔ Digital records are mandatory
Fewer surprises, more real-time tracking – but definitely a mindset shift. Imagine tax season happening more often, but in bite-sized pieces.
Where We Come In
Running your business should feel exciting – not like a constant battle with spreadsheets, deadlines, and HMRC terminology.
That’s where we step in.
We support sole traders with:
- Self-Assessment registration
- Bookkeeping & expense tracking
- Preparing annual tax returns
- Submitting quarterly MTD returns
- Calculating tax & NIC correctly
- Maximising allowable deductions
- Avoiding penalties & compliance issues
But beyond the paperwork, what we really offer is clarity.
Someone to answer your questions at 11 PM when you’re unsure if a software subscription counts as a deductible expense. Someone who understands your business model – not just your numbers. Someone who makes tax feel manageable, not intimidating.
With dedicated accountants and unlimited support via email and calls, you don’t just stay compliant – you stay confident.
Because whether you’re a freelancer, consultant, baker, trader, or business owner… You’re already doing the hard part: building something of your own.
We simply make the financial side easy.
