Self-Assessment Tax Returns: Guide for Sole Traders

As a sole trader, Self Assessment is how you tell HMRC what you earned and pay the tax on it. There is no employer taking tax off your pay, so the responsibility is yours: registering on time, keeping records, filing the return and paying by the deadline. Get it right and Self Assessment as a sole trader is a once-a-year job. Get it wrong and penalties start at £100 the day after the deadline. This guide covers what every Self Assessment sole trader needs to know for the 2025 to 2026 tax year and beyond.

Do you need to register?

You need to register for Self Assessment as a sole trader if your income from self-employment was more than £1,000 in a tax year. Below that, the trading allowance means you usually do not need to tell HMRC. You also need to register if you want to pay voluntary National Insurance to protect your State Pension, even with lower income.

The deadline to register is 5 October after the end of the tax year in which you started. So if you started trading in June 2025, during the 2025 to 2026 tax year, you must register by 5 October 2026. Registering gives you a Unique Taxpayer Reference, explained in our guide to getting your sole trader UTR.

Key Self Assessment dates for sole traders

The tax year runs from 6 April to 5 April. For the 2025 to 2026 tax year:

• 5 October 2026: deadline to register if you are new to Self Assessment.
• 31 October 2026: deadline for paper returns.
• 31 January 2027: deadline for online returns, and to pay any tax owed for 2025 to 2026 plus your first payment on account for 2026 to 2027.
• 31 July 2027: second payment on account for 2026 to 2027.

If you want HMRC to collect a small balance through a PAYE tax code, because you also have a job, file online by 30 December.

What goes on the return

As a sole trader you report your business income and expenses on the self-employment pages of the return, along with any other income: a salary from a job, rental income, savings interest, dividends or pensions. HMRC adds it all together to work out your tax.

Working out your profit

Your taxable profit is your income minus allowable expenses. From the 2024 to 2025 tax year, the cash basis is the default for sole traders, which means you record income when you are paid and expenses when you pay them. You can opt out and use traditional accounting if it suits your business better.

Allowable expenses

Every allowable expense reduces your profit, and so your tax. Common examples for a Self Assessment sole trader include:

• stock and materials you buy to sell or use in your work
• office costs such as stationery, phone and software
• travel for business, but not your ordinary commute
• business insurance, bank charges and accountancy fees
• advertising, website and marketing costs
• staff costs and subcontractors
• training that keeps your existing skills up to date

Simplified expenses

Instead of working out the exact business share of some costs, you can use HMRC's flat rates:

• Vehicles: 45p a mile for the first 10,000 business miles in a car or van, then 25p a mile.
• Working from home: a monthly flat rate based on hours worked at home: £10 for 25 to 50 hours, £18 for 51 to 100 hours, £26 for 101 hours or more.

If your expenses are small, you can claim the £1,000 trading allowance instead of actual expenses. You cannot claim both.

Income Tax and National Insurance on your profits

Income Tax

Most people have a Personal Allowance of £12,570, the amount you can earn before paying Income Tax. Above that, in England, Wales and Northern Ireland, you pay 20% on income up to £50,270, 40% up to £125,140 and 45% above that. Scotland has its own bands and rates. The Personal Allowance is reduced by £1 for every £2 of income over £100,000.

National Insurance

Sole traders pay Class 4 National Insurance on profits: 6% on profits between £12,570 and £50,270, and 2% on profits above that. Since 6 April 2024, Class 2 National Insurance is no longer compulsory. If your profits are below the small profits threshold, you can choose to pay voluntary Class 2 contributions to keep building your State Pension, which is usually good value.

Payments on account explained

Payments on account are the part of Self Assessment that surprises sole traders most. If your last tax bill was more than £1,000, and less than 80% of your tax was collected at source, HMRC asks you to pay towards next year's bill in advance:

• the first payment on account, half of last year's bill, is due on 31 January
• the second, the other half, is due on 31 July
• any balance still owed is paid the following 31 January

In your second year of trading, this can mean paying one and a half years of tax in one go on 31 January. If you expect your profits to fall, you can apply to reduce your payments on account, but if you reduce them too far you pay interest on the shortfall.

A worked example

Take a sole trader in England with a taxable profit of £40,000 for 2025 to 2026, no other income, and a standard Personal Allowance:

• Income Tax: (£40,000 minus £12,570) × 20% = £5,486.00
• Class 4 National Insurance: (£40,000 minus £12,570) × 6% = £1,645.80
• Total tax for the year: £7,131.80

If this is the first year with a bill over £1,000, the payment due on 31 January 2027 is the full £7,131.80 plus a first payment on account for 2026 to 2027 of half that, £3,565.90: a total of £10,697.70. The second payment on account of £3,565.90 follows on 31 July 2027. Setting aside around a quarter of your profit as you go avoids a nasty surprise.

Common mistakes sole traders make

• Forgetting to register. Many new sole traders assume HMRC will contact them. It will not, and late registration can lead to penalties for failing to notify.
• Mixing business and personal spending. One bank account for everything makes records slow to prepare and harder to defend if HMRC asks questions.
• Claiming the commute. Travel from home to a regular place of work is not allowable, even for the self-employed.
• Missing payments on account. They are easy to overlook in the second year, when the 31 January bill suddenly jumps.
• Leaving it to January. HMRC's phone lines and many accountants are busiest in January. Filing in the autumn gives you months to plan the payment.

Penalties for filing and paying late

For a late return:

• £100 straight away, even if you owe no tax
• after 3 months, £10 a day for up to 90 days (up to £900)
• after 6 months, a further 5% of the tax due or £300, whichever is higher
• after 12 months, another 5% or £300, whichever is higher

For late payment, interest runs from the due date, and penalties of 5% of the unpaid tax are added at 30 days, 6 months and 12 months.

Making Tax Digital for Income Tax

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 in the 2024 to 2025 tax year must use Making Tax Digital for Income Tax. That threshold falls to £30,000 from April 2027 and £20,000 from April 2028. Qualifying income means your total turnover from self-employment and property, before expenses.

Under MTD you keep digital records, send quarterly updates through compatible software and file a final return after the year end. If you are near the thresholds, set up software now rather than waiting.

Keeping records as a sole trader

You must keep records of all business income and expenses, with receipts and invoices to back them up, for at least five years after the 31 January deadline for that tax year. A separate business bank account makes this far easier, even though sole traders are not legally required to have one.

When a limited company might suit you better

As profits grow, some sole traders find that running the business through a limited company lowers their overall tax, because company profits pay Corporation Tax instead of Income Tax and National Insurance. It also brings more admin and different rules for taking money out. If you decide to incorporate, our company formation service can set up the company for you.

Self Assessment sole trader checklist

• Register by 5 October after your first tax year of trading.
• Keep records of every sale and expense through the year.
• Claim allowable expenses or the £1,000 trading allowance.
• File online by 31 January and pay what you owe the same day.
• Budget for payments on account from your second year.
• Check whether Making Tax Digital applies to you.

HMRC's official guidance is on GOV.UK: Self Assessment tax returns and expenses if you are self-employed.

Let us file your return

We prepare and file Self Assessment returns for sole traders across the UK, claim every allowable expense, check your payments on account, and tell you exactly what to pay and when. See our Self Assessment service, or if you are just starting out, our sole trader registration service.