When do I need to register as self-employed with HMRC?

By 5 October in the second tax year after you started trading. The UK tax year runs from 6 April to 5 April. So if you started self-employment in June 2026 (during the 2026/27 tax year), you must register by 5 October 2027. Late registration can trigger penalties. There is no penalty for registering early — most people benefit from registering as soon as they decide to trade, so the HMRC tax account is set up and ready when income arrives.

How much tax do you pay as a sole trader in 2026/27?

Income tax at the same rates as employees — 20% on profit between £12,570 and £50,270, 40% between £50,270 and £125,140, and 45% above — plus Class 4 National Insurance at 6% on profit between £12,570 and £50,270, and 2% above. A sole trader with £30,000 profit pays approximately £4,532 in total (about 15% effective rate). At £50,000 profit it is about £9,732 (around 19%). Class 2 NI is now voluntary as of April 2024.

What is the trading allowance and should I use it?

The £1,000 trading allowance lets you earn up to £1,000 gross from self-employment or casual income in a tax year completely tax-free — no Self Assessment registration needed at all. If your gross income is over £1,000, you can either claim the £1,000 allowance instead of actual expenses, or claim your actual expenses in the normal way. You cannot do both. For most small side-hustles with low costs the trading allowance is simpler. For businesses with significant real expenses (materials, equipment, software), claiming actual expenses usually saves more.

What is Making Tax Digital for Income Tax and does it apply to me?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is the biggest change to UK self-employment tax reporting in decades. From 6 April 2026 it became mandatory for sole traders and landlords with gross qualifying income over £50,000 in the 2024/25 tax year. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. Affected taxpayers must keep digital records, use HMRC-recognised software, and submit four quarterly updates plus a Final Declaration each year instead of the traditional annual Self Assessment return. Tax payment dates do not change.

What expenses can I claim as a sole trader?

Any expense that is incurred wholly and exclusively for business purposes. The main categories are: office costs (stationery, postage, software subscriptions), phone and broadband (business-use proportion), travel and accommodation, vehicle costs (or 45p/mile simplified mileage for the first 10,000 miles, 25p after), use of home as office (£6/week flat rate or actual calculation), professional fees (accountant, legal), advertising and marketing, bank charges on a business account, and equipment via the Annual Investment Allowance. Personal living costs, client entertainment, and ordinary commuting are not allowable.

When does the VAT threshold apply?

VAT registration is mandatory when your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period (the 2026/27 threshold). It is also mandatory if you expect to cross that threshold in the next 30 days. Voluntary registration is possible below the threshold and can sometimes be beneficial if your customers are VAT-registered businesses (who can reclaim the VAT you charge) and you have significant VAT on your own business expenses to reclaim. Registration is done through HMRC online.

When should I consider going limited instead of sole trader?

The crossover point is usually around £40,000 to £50,000 in annual profit, where the corporation tax plus dividend extraction structure starts saving meaningfully versus paying personal income tax and Class 4 NI on all profit. Below that, the additional admin (Companies House filings, annual accounts, separate business banking, IR35 considerations for contractors) often outweighs the tax saving. The Making Tax Digital quarterly reporting burden from April 2026 has shifted the calculation slightly — limited companies are outside MTD ITSA — but the bigger factors remain profit level, liability protection, and credibility with clients.

Guide · Business

Going Self-Employed in the UK 2026: Tax, HMRC and a Step-by-Step Guide.

A straight, plain-English breakdown of what becoming a UK sole trader actually involves in 2026 — registration, tax rates, allowable expenses, the big Making Tax Digital change that landed in April 2026, and worked examples at every profit level. Information, not advice.

Published 28 June 2026 Read 13 min By John, Northhaus

The headline figures.

Self-employment is not a niche choice in the UK — it's one of the most common ways to work. The numbers below are the ones worth anchoring on before getting into the mechanics of tax and registration.

4.57 million

Self-employed workers in the UK — ONS Q1 2026 labour market data

3.2 million

Sole proprietorships — 57% of UK private sector businesses, DBT 2025

£12,570

Personal Allowance for 2026/27 — the first slice of profit that is tax-free

Sole traders make up the largest single legal form of UK business by count. The vast majority — around 85% — operate alone, without employees. Of the 4.57 million self-employed, around 2.8 million are men and 1.5 million are women. The biggest industries are construction (around 748,000), professional and scientific services (around 551,000), and a long tail of consultants, contractors, designers, tradespeople and creators across every other sector.

What "self-employed" actually means.

For tax purposes, the UK recognises three main legal forms of working for yourself:

Sole trader

The simplest form. You are the business — there is no legal separation between your personal and business finances. You register with HMRC, file Self Assessment each year, and pay income tax and Class 4 National Insurance on your profit. You can trade under your own name or a trading name. You can have employees if you want, though most sole traders don't. About 85% of UK self-employed people operate this way.

Partnership

Two or more people sharing the running of a business and the profits. Each partner registers individually and is taxed on their share of the profit through Self Assessment. The partnership itself also files a tax return, but it does not pay tax — the partners do, on their respective shares.

Limited company

A separate legal entity, registered at Companies House. You become a director and shareholder of your own company. The company pays corporation tax on its profits; you extract income through salary and dividends. More admin, more cost, but at higher profit levels usually more tax-efficient and provides liability protection. Covered in detail in the going limited section.

For the rest of this guide, "self-employed" means sole trader — by far the most common entry point.

How to register with HMRC.

Registration is free, online, and takes about 10 minutes once you have a Government Gateway ID. The process:

Step 1: Decide when you started trading

You're "trading" from the date you first started earning money — invoiced a client, made your first sale, took your first booking. Not when you registered, not when you opened a business bank account, not when you bought your first piece of equipment. The actual income date is what matters.

Step 2: Register by the deadline

The deadline is 5 October in the second tax year after you started. The UK tax year runs 6 April to 5 April. So if you started self-employment in June 2026 (during the 2026/27 tax year), you must register by 5 October 2027. Most people benefit from registering earlier — there's no penalty for early registration, and getting set up before income arrives means less to do in a rush later.

Step 3: Register online via gov.uk

Go to gov.uk and search for "register as self-employed". You'll need: your name, address, National Insurance number, the date you started trading, and a brief description of what your business does. HMRC issues a Unique Taxpayer Reference (UTR) by post within about 10 working days. The UTR is the 10-digit number that identifies your tax record for the rest of your self-employed life — keep it safe.

Step 4: Set up your tax account

Once your UTR arrives, sign in to the HMRC online services using your Government Gateway ID. You'll see your Self Assessment account, where future returns are filed. From April 2026, anyone above the £50,000 qualifying income threshold also needs to sign up separately for Making Tax Digital for Income Tax — see the MTD section below.

The £1,000 trading allowance: If your total gross self-employment income in a tax year is £1,000 or less, you don't need to register or report anything. This covers most genuinely casual side-incomes — selling on eBay occasionally, the odd freelance piece, small craft sales. If you cross £1,000, registration is required.

What you'll actually pay in tax.

Sole traders pay tax on profit — turnover minus allowable expenses — not on turnover. The two charges are income tax (at the same rates as employees) and Class 4 National Insurance. There is no employer National Insurance — there's no employer.

Income tax bands — England, Wales and Northern Ireland, 2026/27

2026/27 income tax thresholds for sole traders (rUK)
Band	Profit range	Rate
Personal Allowance	£0 – £12,570	0%
Basic rate	£12,571 – £50,270	20%
Higher rate	£50,271 – £125,140	40%
Additional rate	Over £125,140	45%

The Personal Allowance is reduced by £1 for every £2 of income over £100,000, vanishing entirely at £125,140. Scotland has different income tax rates and bands (starter, basic, intermediate, higher, top) — Scottish sole traders should check current rates at gov.scot, though Class 4 NI is the same UK-wide.

Worked examples — total tax at common profit levels

Combined income tax + Class 4 NI for 2026/27
Annual profit	Income tax	Class 4 NI	Total	Effective rate
£15,000	£486	£146	£632	4.2%
£25,000	£2,486	£746	£3,232	12.9%
£35,000	£4,486	£1,346	£5,832	16.7%
£50,000	£7,486	£2,246	£9,732	19.5%
£75,000	£17,432	£2,754	£20,186	26.9%
£100,000	£27,432	£3,254	£30,686	30.7%

These figures assume the standard Personal Allowance and no other income. The effective rate increases progressively, which is why tax planning becomes more valuable at higher profit levels — particularly through pension contributions, which reduce taxable income and attract tax relief.

National Insurance in 2026/27.

National Insurance for the self-employed has changed materially in recent years. The current position is simpler than it was, but still trips people up.

Class 2 — now voluntary

Class 2 National Insurance was the old flat weekly rate paid by all self-employed people. It became voluntary from 6 April 2024. If your profits exceed the Small Profits Threshold of £6,845, your NI record is automatically credited towards your State Pension without payment. The voluntary rate for 2026/27 is £3.65 per week (£189.80 per year) — relevant only if your profits are below £6,845 and you want to maintain a complete NI record for State Pension purposes.

Class 4 — the main NI charge

Class 4 National Insurance is what most self-employed people now pay on their profit:

Class 4 NI rates 2026/27
Profit range	Rate
£0 – £12,570	0%
£12,571 – £50,270	6%
Over £50,270	2%

The 6% rate is 2 percentage points lower than the 8% employees pay (Class 1) — but employees get sick pay, holiday pay, redundancy entitlement and employer pension contributions that self-employed workers don't. The NI "saving" is real but should never be confused with a total cost advantage over employment.

Allowable expenses — what you can deduct.

The rule is simple in principle and finicky in practice: an expense is allowable if it is incurred wholly and exclusively for the purposes of the business. Where an expense has both business and personal use (phone, broadband, vehicle, home), you can claim the business proportion.

The main categories

Office costs: stationery, postage, printer ink, software subscriptions (Adobe, Office, accounting software, productivity tools)
Phone and broadband: business-use proportion (most freelancers calculate this honestly at 50–80% depending on use pattern)
Travel and accommodation: business travel only — never ordinary commuting from home to a regular workplace
Vehicle costs: either actual costs (fuel, insurance, repairs, depreciation) at the business-use proportion, or simplified mileage at 45p/mile for the first 10,000 miles and 25p/mile thereafter
Use of home as office: £6 per week flat-rate without records (£312/year), or actual proportion of utility bills, council tax, rent and broadband based on rooms used and time
Professional fees: accountant, solicitor, bookkeeper, business advisers
Marketing and advertising: website hosting, domain, ads, business cards, content production
Bank charges: on a dedicated business account (not personal)
Equipment and capital items: claimed through the Annual Investment Allowance — laptops, cameras, tools, machinery — up to £1,000,000 per year in full deduction
Training: training related to your existing trade (training to start a new trade is not allowable as a business expense)

What is not allowable

Personal living costs — food, clothing (except specialist work uniforms or protective gear), housing
Ordinary commuting between home and a regular workplace
Client entertainment (uniquely, this is not deductible in the UK)
Fines and penalties (including HMRC late-filing penalties)
Your own salary or drawings from the business — sole traders are taxed on profit, not on what they pay themselves
Your own pension contributions as a business expense (but they attract personal tax relief through Self Assessment)

Making Tax Digital from April 2026 — the big change.

This is the most significant change to UK self-employment tax in decades, and awareness remains surprisingly low. IPSE and Sage research found only 30% of sole traders have a clear understanding of what MTD ITSA involves. The rollout is phased and entirely based on gross qualifying income.

The rollout timeline

MTD for Income Tax Self Assessment rollout
From	Threshold	Affected
6 April 2026	Gross qualifying income > £50,000	~780,000
6 April 2027	Gross qualifying income > £30,000	+970,000
6 April 2028	Gross qualifying income > £20,000	Most remaining sole traders

What MTD ITSA actually requires

Digital record-keeping. All income and expenses tracked in HMRC-recognised software from day one of the tax year. Paper records alone are no longer compliant for those in scope.
Four quarterly updates per year. Submitted via the software to HMRC by 7 August, 7 November, 7 February and 7 May (using standard tax-year quarters). These are summaries — not full returns. No tax is paid at these points.
One Final Declaration per year. Replaces the traditional Self Assessment return. Due by 31 January after the tax year ends — same deadline as the current system. This is where adjustments, other income (PAYE, savings, dividends), and the final tax position are confirmed.
Tax payment dates are unchanged. Tax is still paid annually by 31 January (with payments on account in July if applicable). MTD is about reporting frequency, not payment frequency.

Critical detail: it's gross income, not profit

The £50,000 threshold is based on gross qualifying income — total turnover from self-employment and property combined, before any expenses or allowances. If your turnover is £55,000 but your profit after expenses is £28,000, you are still in scope from April 2026. Self-employment income and rental income are added together when calculating the threshold.

Software options

HMRC publishes an official list of recognised MTD ITSA software at gov.uk. Popular options include Xero, QuickBooks, FreeAgent, Sage and a growing range of lower-cost alternatives. Spreadsheets can still be used, but they must be combined with bridging software that submits the data digitally to HMRC. Free options exist but typically have transaction limits.

First-year grace period: HMRC has confirmed that no penalty points will accrue for late quarterly updates during the first 12 months of MTD ITSA for those joining in April 2026. The Final Declaration deadline (31 January 2028 for the 2026/27 tax year) carries the usual penalty regime from day one.

Self Assessment — deadlines and payments on account.

If you're below the MTD ITSA threshold, the existing Self Assessment system continues to apply. Even if you're above the threshold, the deadlines for paying tax are unchanged.

The annual cycle

6 April 2026: Tax year 2026/27 begins
5 April 2027: Tax year 2026/27 ends
31 October 2027: Paper Self Assessment return deadline (rarely used now)
31 January 2028: Online Self Assessment return deadline AND tax payment deadline for 2026/27 + first payment on account for 2027/28
31 July 2028: Second payment on account for 2027/28

Payments on account — the part that surprises people

If your previous year's tax bill (excluding tax already deducted through PAYE) was over £1,000, HMRC requires you to make two advance payments on account towards next year's bill. Each is 50% of the previous year's liability. They're due on 31 January and 31 July.

The unpleasant surprise hits in your second year. In your first year, you simply pay the 2026/27 tax bill on 31 January 2028. But that same payment date also triggers the first payment on account for 2027/28 — meaning you might suddenly owe 150% of your actual liability in one go. Plan for this from day one. Set aside 25–30% of profit into a separate tax savings account from your first invoice onwards.

Late filing and payment penalties

Late Self Assessment carries a £100 fixed penalty after one day, with additional daily and percentage-based penalties accumulating after 3, 6 and 12 months. Late payment attracts interest (currently around 7.5%) plus surcharges at 30 days, 6 months and 12 months. The penalties are mechanical — there's no discretion for "I forgot" — but HMRC will accept "reasonable excuse" appeals for genuine emergencies, hospitalisation, family bereavement, and similar.

When to consider going limited.

Most new self-employed people start as sole traders. It's simpler, cheaper, and the right structure for the first one to three years for almost everyone. But at some point, going limited starts to make sense — both for tax and for non-tax reasons.

The tax crossover point

The often-quoted figure is around £40,000 to £50,000 in annual profit. Below that, a limited company structure usually saves little after accountancy fees and the extra admin. Above that, the corporation tax (19% to 25%) plus salary/dividend extraction structure starts to genuinely outperform the income tax + Class 4 NI sole trader model. The gap can reach £10,000+ per year at higher profit levels.

Non-tax reasons to consider going limited

Liability protection. A limited company is a separate legal entity. Its debts are not (generally) your debts. As a sole trader, you are personally liable for any business debts or claims against the business.
Credibility with clients. Some larger clients prefer or require working with limited companies. This is particularly true in B2B services, technology, and construction.
MTD avoidance. Limited companies are not within the scope of MTD ITSA. They file annual Corporation Tax returns once a year — no quarterly updates. For some sole traders, particularly those just below the £50,000 threshold weighing up the admin burden, this has tipped the scales.
Pension flexibility. Limited companies can make employer pension contributions, which are deductible from corporation tax — often more tax-efficient than personal contributions.
Capital structure. Easier to bring in investors, partners or future co-owners. Easier to sell the business at exit.

For a full walk-through of the limited company decision, including registration with Companies House, corporation tax, salary/dividend planning and IR35 considerations, see the Incorporated UK Limited Company Guide.

The most common mistakes.

Patterns repeat across new sole traders. The expensive mistakes are nearly always avoidable:

Not setting aside tax money from day one. Set aside 25–30% of every invoice into a separate account. The first 31 January tax bill is brutal if the money is no longer there.
Mixing personal and business banking. Open a dedicated account from the start — even a free personal account used only for business purposes is better than mixing everything together. Makes bookkeeping vastly easier.
Ignoring MTD until the last minute. If you're approaching the £50,000 threshold, get onto MTD-compatible software now. Retrofitting six months of paper receipts in the first quarter is far harder than recording transactions as they happen.
Underclaiming on expenses. Many sole traders pay too much tax simply because they don't track expenses well. Software helps. So does an accountant in year one.
Overclaiming on expenses. The other side of the same coin. Anything that's not "wholly and exclusively" for business will be challenged in an HMRC enquiry, and HMRC has the power to look back six years.
Forgetting the second payment on account. The 31 July payment surprises a lot of people in year two. Diary it.
Not registering for VAT in time. The £90,000 threshold applies on any rolling 12-month basis, not the tax year. Cross it without registering and HMRC will charge VAT retrospectively — out of your own pocket.
Treating self-employment as employment for budgeting purposes. No sick pay, no holiday pay, no employer pension, no redundancy. Price work to include all of these, or live with the consequences.

Frequently asked questions.

Can I be employed and self-employed at the same time?

Yes — this is extremely common. You pay PAYE on your employment income (deducted by your employer) and file Self Assessment for your self-employed profit. The two incomes are combined when calculating your overall tax position. Your Personal Allowance is normally used against your employment income first, so every pound of self-employed profit may be taxed at 20% or 40% from the first pound, depending on your salary level.

Do I need a separate business bank account?

Not legally required for sole traders, but strongly recommended. Many high street banks require business accounts for any trading activity (check your terms — using a personal account for business breaches some banks' rules). More importantly, mixing transactions makes bookkeeping painful and HMRC enquiries harder to defend. Several free or low-cost online business accounts (Tide, Starling Business, Mettle) exist if traditional bank fees are off-putting.

What's the difference between the trading allowance and allowable expenses?

The £1,000 trading allowance is a flat deduction you can claim instead of working out your actual expenses. It's an either/or choice — you cannot claim both. Most people with significant real costs (materials, equipment, software, travel) save more by claiming actual expenses. People with very low costs — for example, online tutoring, freelance writing without travel, modest casual sales — usually save time and tax by claiming the flat £1,000 allowance.

Do I need an accountant?

Not legally required, but a good idea in your first year. A competent accountant typically costs £400–£900 for a sole trader return and often saves more than that in claimed expenses, capital allowances, and avoided penalties. Some people self-file using HMRC's free online service from year two onwards, having learned the structure in year one. For more complex situations (multiple income sources, property, overseas elements, approaching the MTD or VAT threshold), ongoing professional advice usually pays for itself.

What happens if I make a loss?

You can offset trading losses against other income in the same tax year, including PAYE salary from a current or previous job — potentially generating a tax refund. You can also carry losses forward to set against future profits from the same trade. Specific rules apply for new businesses, including the option to carry early-year losses back against the previous three tax years. Loss relief is one of the most underused provisions in the system.

How does MTD interact with being employed and self-employed?

MTD ITSA only counts your self-employment and property income towards the threshold — employment income (PAYE), savings interest, dividends and partnership distributions don't count. So if you earn £45,000 from a job and £40,000 from freelance work in 2024/25, your MTD-qualifying income is £40,000 — below the April 2026 threshold of £50,000, but you'll be brought in from April 2027 when the threshold drops to £30,000.

What about Scotland?

Scottish income tax has different rates and bands — a starter rate, basic, intermediate, higher, advanced and top, with thresholds set by Holyrood. Self-employed Scottish residents file UK Self Assessment in the normal way but their income tax is calculated against Scottish bands. Class 4 National Insurance and the VAT threshold are UK-wide. Check current Scottish income tax rates at gov.scot.

Everything you need, in one designed ebook.

The Northhaus Self-Employed guide is a 26-page designed ebook covering UK sole trader setup end-to-end — HMRC registration, Self Assessment, National Insurance, VAT, allowable expenses, Making Tax Digital, and pricing your first year. Figures verified against 2026/27 UK tax data. Single PDF download, yours to keep.

View the Self-Employed ebook — £1.99

Sources

HM Revenue & Customs — Self-employed National Insurance rates (gov.uk)
HM Revenue & Customs — Income Tax rates and Personal Allowances 2026/27
HM Revenue & Customs — Making Tax Digital for Income Tax Self Assessment
Office for National Statistics — Labour Force Survey: Self-employed UK Q1 2026
Department for Business and Trade — Business Population Estimates 2025 (October 2025)
Institute for Fiscal Studies — UK Self-Employment Research
MoneyHelper — Tax and National Insurance for the self-employed
IPSE / Sage — MTD ITSA Awareness Research 2025/26

Figures cited reflect publicly reported data as of June 2026. UK tax rates and thresholds for the 2026/27 tax year. This guide provides general information for educational purposes only and is not tax or legal advice. Always verify current rates at gov.uk and consider professional advice for your specific situation.