Your first year as a sole trader: what HMRC expects

In your first year as a sole trader, HMRC expects you to keep records from day one, register for Self Assessment by 5 October after the tax year ends, and file and pay by the following 31 January. The surprise for most new sole traders is the size of that first bill. It usually includes the whole year’s tax plus an advance payment towards the next year.

Do you need to register?

You must register for Self Assessment if you earn over £1,000 from self-employment in a tax year (6 April to 5 April). GOV.UK’s set up as a sole trader guide says you can start trading before you register, and you can register earlier if you choose.

The £1,000 is gross income, before expenses. From 6 April 2027 the threshold rises to £3,000. See trading allowance triples to £3,000.

Your first-year timeline

Here is the timeline for someone who starts trading in, say, June 2026.

GOV.UK says you could be fined if you register late. When you register you get a Unique Taxpayer Reference. See how to register as a sole trader.

Step by step: setting up properly

1. Choose a name. You can trade under your own name or a trading name, within the naming rules.
2. Open a separate bank account. It is not a legal requirement for sole traders, but it makes records far easier.
3. Keep records from the first day. Record all sales and all business expenses, and keep receipts.
4. Register for Self Assessment once you pass £1,000, and by 5 October at the latest.
5. Put tax aside every month. A set percentage of each payment you receive avoids a January shock.
6. Check VAT each month. Register if taxable turnover passes £90,000 in the last 12 months, or is expected to in the next 30 days, as GOV.UK’s VAT guide sets out.

Our sole trader bookkeeping guide covers simple ways to keep records. Keep them for at least 5 years after the 31 January deadline for the year.

What tax and National Insurance will you pay?

You pay Income Tax and Class 4 National Insurance on your profit, which is income minus allowable expenses. For 2026-27:

• Income Tax: nothing on the first £12,570, then 20% up to £50,270 and 40% above
• Class 4 NI: 6% on profits between £12,570 and £50,270, and 2% above, per GOV.UK’s National Insurance rates
• Class 2 NI: treated as paid if profits are £7,105 or more; below that you can pay voluntarily at £3.65 a week

See National Insurance for the self-employed for how the State Pension record works.

Worked example: the first bill

A designer starts in June 2026 and makes a profit of £30,000 in 2026-27, with no other income.

This follows GOV.UK’s own payments on account example: if you did not make payments on account last year, you pay the full bill plus the first payment on account in January. Each payment on account is half of last year’s bill, and includes Class 4 NI.

You do not make payments on account if your bill is under £1,000, or if more than 80% of your tax was collected at source, for example through PAYE. Try the self-employed take-home calculator with your own figures.

Which applies to you?

• If you also have a job, your employment uses your personal allowance, so more of your self-employed profit is taxed. A PAYE job may also mean payments on account are not needed.
• If you earn under £1,000 gross, you do not need to register unless you want to, for example to pay voluntary National Insurance.
• If your profit is under £12,570, you may owe no Income Tax, but you still file a return if you are registered.
• If your income will be over £20,000 in 2026-27, plan for Making Tax Digital from April 2028.

Making Tax Digital

HMRC’s MTD eligibility guide sets the start dates by qualifying income: over £30,000 in 2025-26 means joining from 6 April 2027, and over £20,000 in 2026-27 means joining from 6 April 2028. HMRC reviews your return and writes to confirm. You must have filed a Self Assessment return before you can sign up.

What to do now

1. Start a simple income and expenses record today, even if you have only made a few sales.
2. Set aside about 25% of profit as a starting point, then refine it with the calculator.
3. Note 5 October 2027 and 31 January 2028 in your diary.
4. Read payments on account so the January bill is no surprise.

Frequently asked questions

When do I have to register as a sole trader?

By 5 October after the end of the tax year in which you earned over £1,000. For a business started in 2026-27, that is 5 October 2027.

When is my first tax return due?

For the 2026-27 tax year, the online return is due by 31 January 2028, or 31 October 2027 on paper.

Why is my first Self Assessment bill so high?

It usually includes the full year’s tax plus the first payment on account for the next year, which is half of that bill again.

Do I need to register for VAT in my first year?

Only if taxable turnover passes £90,000 in a rolling 12 months, or you expect it to in the next 30 days. You can register voluntarily below that.

Do I pay Class 2 National Insurance?

Not as a separate bill. It is treated as paid if profits are £7,105 or more in 2026-27; below that you can pay it voluntarily at £3.65 a week.