As a sole trader, it is important that you understand your tax obligations and when you need to pay them because failing to do so can have serious consequences.
Your business is taxed on the profit it makes, so you need to keep a comprehensive account of all your figures and submit the correct information to HM Revenue and Customs (HMRC).
How do I register my business online?
To ensure you meet the regulations in place, you must set up a Government Gateway account and complete the online form.
The form will require you to provide information about your business, including its purpose and the work it is going to do.
Once complete, HMRC will send you a letter which contains your personal Unique Taxpayer Reference (UTR) number.
What tax will sole traders need to pay?
Being a sole trader means you are responsible for ensuring tax returns are filed on time and correctly.
Because you are taxed on profits made, you will be required to pay Income Tax on those profits. However, this only happens when you exceed the £12,750 personal tax allowance.
Should your company make over £90,000 in a 12-month period, you will need to register for Value Added Tax (VAT).
What you need to know about Making Tax Digital?
There are big changes coming as some sole traders will need to follow the Making Tax Digital (MTD) for Income Tax Self-Assessment regulations, which become law in April 2026.
It is a gradual process, so not all sole traders will be following the regulations straight away. However, from April 2026, Sole traders generating an annual turnover of over £50,000 will need to comply with the MTD for Income Tax regulations.
Because this is a gradual process, the amount of liable sole traders should increase each year as the threshold decreases. If your turnover exceeds £30,000, from April 2027 you will need to follow the MTD for Income Tax regulations. It then drops to £20,000 from April 2028.
When you need to follow the new MTD regulations will depend on your Income Tax return from the 2024/25 tax year, so it’s important you understand the regulations ahead of time.
MTD for Income Tax Self-Assessment will require sole traders to maintain digital accounting records because HM Revenue and Customs (HMRC) will no longer accept paper documents.
As well as maintain digital records, the regulations require you to submit quarterly reports to HMRC and clarify your tax position each year.
Are there ways I can reduce my tax bill?
Business costs, including taxes, can add up very quickly, which is why there is an avenue for sole traders to reduce their tax bill.
The Government has listed allowable expenses that you can claim, which could reduce your tax bill. The list includes office costs, uniform and clothing costs, staff costs, as well as heating and electricity bills.
There is a downside because if you are using your £1,000 tax-free trading allowance, you will not be able to claim expenses.
Comprehensive tax support for all sole traders
It is imperative when operating as a sole trader that you understand your tax obligations and follow the regulations in place.
If you are unsure about any tax obligations or rates in the UK, our expert team of advisors are on standby to help. We can give you the tools to manage tax efficiently and effectively, know your obligations and meet HMRC’s stringent requirements.
If you need tax advice and support, get in touch with our team.