Register as a sole trader with HMRC

Published Friday 6 November 2026

Table of contents

• What is a sole trader?
• Pros and cons of being a sole trader
• When do you need to register as a sole trader?
• How much does it cost to register as a sole trader?
• Information you need to register as a sole trader
• How to register as self-employed (sole trader) with HMRC
• What happens after you register: tax and record-keeping
• Get your sole trader finances set up with Xero
• FAQs on registering as a sole trader

Key takeaways

• Register with HM Revenue and Customs (HMRC) by 5 October after the tax year you start self-employment; it's free and you can do it online
• Pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above, through your Self Assessment return
• Choose whether to pay voluntary Class 2 National Insurance, £3.65 a week in 2026/27, to protect your State Pension record
• Check if Making Tax Digital (MTD) for Income Tax applies: it covers qualifying income over £50,000, and over £30,000 from 6 April 2027

What is a sole trader?

A sole trader is a self-employed person who owns and runs their business as an individual. You make all the decisions and keep all the profits. In return, you're personally responsible for any losses.

Despite the name, you can hire employees as a sole trader. The "sole" refers to ownership, whatever the size of your team. That's what sets it apart from partnerships and limited companies, where more than one person can own the business.

Sole trader status works well for:

• new businesses testing ideas with a simple structure
• contractors who want a straightforward setup for freelance work
• self-employed professionals who want minimal admin for service-based work
• growing businesses that may change structure later as they scale

People often use "sole trader" and "self-employed" to mean the same thing. Here's how the two terms fit together.

Sole trader vs self-employed: what's the difference?

Self-employed is your employment status: you work for yourself rather than as someone's employee. A sole trader is one business structure within self-employment, where you and your business are legally the same.

Partners in a partnership are self-employed too, but they share ownership of the business. When you register with HMRC as self-employed, you're registering as a sole trader.

For example, a freelance photographer working alone is a sole trader. Two friends running a café as a partnership are both self-employed, but neither is a sole trader.

Once you know where you fit, you can weigh up whether this structure suits your plans.

Pros and cons of being a sole trader

Being a sole trader has several advantages over partnerships and limited companies, especially if you want a simple way to start trading.

Here are the key advantages to consider.

Advantages of being a sole trader

As a sole trader, you can:

• pay lower startup costs than you would to form a limited company
• skip Companies House registration and the paperwork that comes with it
• meet fewer reporting requirements than other business structures
• keep all profits for yourself without sharing with partners or shareholders

There are some trade-offs to weigh up too.

Disadvantages of being a sole trader

As a sole trader, you may need to:

• take personal responsibility for all business debts, which puts your personal assets at risk if the business fails
• manage pension contributions for yourself and any employees you hire
• change your business structure if you want to sell equity stakes to investors
• work harder to sell the business, particularly if your services are highly specialised

If the advantages win out, the next question is when to register.

When do you need to register as a sole trader?

You need to register as a sole trader if you earn more than £1,000 from self-employment in a tax year (6 April to 5 April). This limit is the £1,000 trading allowance, and it applies to all your self-employment income, including part-time side businesses.

Your registration deadline is 5 October after the end of the tax year you became self-employed. Registering as soon as you start trading gives you plenty of time to prepare for your first tax return.

Before you register, it helps to know what you'll pay.

How much does it cost to register as a sole trader?

Registering as a sole trader with HMRC is free. You can officially start your business at no cost.

You'll still need to budget for other startup costs, such as insurance and equipment. Some industries also need specific licences, which step 5 below covers. Keeping your initial costs low is one of the main benefits of this business structure.

With costs covered, you can gather the details HMRC will ask for.

Information you need to register as a sole trader

Gather these details before you start, so you can register in one go:

• National Insurance number
• Business start date
• Business name
• Type of business

Once you have these to hand, you're ready to register.

How to register as self-employed (sole trader) with HMRC

You can register as a sole trader online. Once it's done, you can legally run your business and pay the right taxes.

Having a business plan ready makes the steps quicker, as you'll already know what your business does and what to call it. Follow these five steps.

1. Choose a business name

You have flexibility in naming your sole trader business. You can:

• trade under your legal name, such as "Charlie Cooper", with no extra registration
• choose a trading name, such as "Charlie's Coffee Caravan", to help customers recognise you

If you use a trading name, you can show both names on official documents as "Charlie Cooper trading as (t/a) Charlie's Coffee Caravan".

When you choose a name:

• leave out "limited", "Ltd", "LLP" and "plc"
• check for trademarked names with the UK Intellectual Property Office
• steer clear of offensive words
• avoid restricted words

With a name chosen, you can register with HMRC.

2. Register as a sole trader with HMRC

Registering with HMRC as self-employed signs you up for:

• Self Assessment, which you use to pay income tax on your profits
• National Insurance, which you pay on your profits

Self-employed National Insurance rates for 2026/27 are 6% Class 4 on profits of £12,570–£50,270, 2% above, and voluntary Class 2 at £3.65 a week.

You may also need to register:

• for value added tax (VAT), if your annual turnover is over £90,000
• as an employer, if you hire staff

Here's how to complete your Self Assessment registration.

You register online with HMRC, using the details you gathered earlier. You'll sign in to HMRC online services with a Government Gateway user ID and password or GOV.UK One Login. If you haven't used these services before, you can create new sign-in details.

Once you've registered, HMRC will send you a 10-digit Unique Taxpayer Reference (UTR) and an activation code for your online account. You'll use this account to file your tax return online each year. Depending on your income, Making Tax Digital may also apply, which the next section covers.

Your National Insurance is handled through the same account. For National Insurance, you'll:

• let your Self Assessment return work out your Class 4 contributions and pay them alongside your income tax
• add voluntary Class 2 contributions if you choose to

Next, check whether VAT applies to you.

3. Register for VAT

You may need to register for VAT depending on your turnover. When it comes to VAT, you:

• must register if your annual turnover is over £90,000, or you expect it to be
• can register voluntarily below this threshold to reclaim VAT on business expenses
• may find voluntary registration useful if you sell mainly to other VAT-registered businesses, as they can reclaim the VAT you charge
• can register through HMRC's VAT service using your HMRC online account

The £90,000 threshold is based on your taxable turnover over the last 12 months.

You can learn more in this detailed guide to value added tax. If you're planning to take on staff, there's one more registration to complete.

4. Register as an employer

Hiring staff brings extra responsibilities as an employer. You'll need to:

• register with HMRC using the employer registration service
• set up Pay As You Earn (PAYE) to collect income tax and National Insurance from your employees' pay accurately
• enrol eligible employees in a pension scheme and contribute to their pension
• get Employers' Liability insurance to protect against workplace claims

Your final check depends on what your business does.

5. Licences and permits

Licences and permits depend on your business type and location. Check with your local council for the requirements in your area.

Common licence requirements include:

• food hygiene and premises licences for food businesses
• alcohol licences for venues and shops that sell alcohol
• taxi or private hire licences for transport services
• entertainment licences for venues hosting live music or performances

Once you're registered and licensed, your focus moves to staying on top of tax.

What happens after you register: tax and record-keeping

Registering starts your tax responsibilities as a sole trader. From here, you'll file a return each year and keep records that back up your figures.

File your Self Assessment return each year

Each year, you'll complete an annual Self Assessment return to report your profits. The online filing deadline is 31 January after the end of the tax year, and you pay any tax you owe by the same date.

For example, for the 2026/27 tax year, which ends on 5 April 2027, both deadlines fall on 31 January 2028. Knowing that date helps you plan your cash flow.

Set money aside for tax and National Insurance

Your bill covers income tax and Class 4 National Insurance, which Self Assessment works out for you. Class 2 is voluntary, and you can add it to the same bill if you choose.

Moving a share of each payment you receive into a separate savings pot means the money is ready in January. Find out how to pay yourself while keeping enough aside for tax.

Depending on your income, the way you report to HMRC may also change.

Check if Making Tax Digital applies to you

Making Tax Digital for Income Tax has been mandatory since 6 April 2026 for self-employed people with qualifying income over £50,000. From 6 April 2027, it extends to qualifying income over £30,000, and from 6 April 2028 to qualifying income over £20,000.

If it applies to you, you'll keep digital records in compatible software and send HMRC quarterly updates. You can confirm whether you need to join in GOV.UK's eligibility guidance.

Whether or not MTD applies to you yet, accurate records make every deadline easier.

Keep your records organised

HMRC expects you to keep records of your business income and expenses, so you can support the figures in your return. Logging sales and costs as they happen gives you a clearer view of your profit through the year.

Find more tips in this guide to self-employed accounting. The right software can take much of this admin off your hands.

Get your sole trader finances set up with Xero

Registering as a sole trader is quick and free, and a little preparation makes everything after it simpler. Xero connects to your bank feeds and keeps your income and expenses in one place. Keeping digital records this way helps you stay on top of tax as you go, including if Making Tax Digital for Income Tax applies to you.

Get one month free and see how much simpler your books can be from your first day of trading.

FAQs on registering as a sole trader

Here are answers to common questions about registering as a sole trader.

When should I register as a sole trader?

Register by 5 October after the end of the tax year in which you became self-employed. For example, if you started trading in July 2026, register by 5 October 2027.

Can I register as self-employed if I already have a job?

Yes, you can be self-employed alongside a job. Your employer keeps taking tax through PAYE, and you report your self-employment profits through Self Assessment.

Can I register as self-employed while claiming Universal Credit?

Yes, but you'll need to report your business income and expenses to the Department for Work and Pensions (DWP) each month through your Universal Credit account. If you're gainfully self-employed, a Minimum Income Floor may apply after any start-up period, so check how it could affect your payments.

Do I need a business bank account as a sole trader?

A separate business bank account is optional for sole traders, but it's highly recommended. It makes it easier to track income and expenses and prepare your tax return.

What happens if I don't register as a sole trader?

If you register after 5 October and don't pay all your tax by 31 January, HMRC may charge you a failure to notify penalty. Registering as soon as you start trading helps you avoid it.

Can I change from sole trader to limited company later?

Yes, you can change your business structure at any time, and many sole traders incorporate as their business grows. You'll need to register the company with Companies House and tell HMRC about the change.