What is a Sole Trader? What Classes Someone As One?
If you’re running a business on your own in the UK, chances are you’re either a sole trader or trading through a limited company. A sole trader is the simplest setup: you trade in your own name (or a business name), you keep the profits after tax, and you’re personally responsible for the business. There’s no separate legal entity, which is the key difference from a limited company.
In practical terms, you’re generally classed as a sole trader if you’re self-employed and running the business as an individual (rather than through a company), for example doing freelance work, providing services, or buying and selling for profit.
Do you need to register as a sole trader?
If your gross trading income (before expenses) is more than £1,000 in a tax year, you’ll usually need to register for Self Assessment (this £1,000 is the “trading allowance”). If you stay at or under £1,000, you typically don’t need to register just for that trading income.
The deadline to tell HMRC you need to complete a tax return is usually 5 October after the end of the tax year in which you started trading (e.g., income earned in the 2025/26 tax year is usually registered by 5 October 2026).
Self Assessment deadlines (the ones that catch people out)
Most sole traders file a Self Assessment tax return each year. Key dates include:
- 31 October for paper returns (if you use them)
- 31 January for online returns and paying any tax due
Depending on your profits and tax bill, you may also need to make payments on account (advance payments towards next year’s bill), typically due 31 January and 31 July.
National Insurance: what applies to sole traders?
Self-employed National Insurance is mainly handled through Self Assessment. HMRC still publishes a Class 2 weekly rate (and explains how it’s paid), but recent changes mean many people won’t pay Class 2 as a mandatory charge and may instead choose to pay it voluntarily to protect their entitlement record (where relevant). Class 4 is based on profits.
Bookkeeping and record-keeping: what you must do
A sole trader doesn’t have to produce formal “company accounts”, but you do need clear, accurate records to support your tax return. HMRC requires you to keep records (such as sales, invoices, expenses, bank statements, and receipts) for at least 5 years after the 31 January submission deadline for that tax year.
A simple habit that helps: keep your business income and costs easy to trace (many people use a separate bank account, and store receipts digitally as they go).
Making Tax Digital for Income Tax is becoming part of the job
From 6 April 2026, Making Tax Digital for Income Tax will apply to sole traders (and landlords) with qualifying income over £50,000, with the threshold reducing in later years. This brings in digital record keeping and quarterly updates using compatible software.
Don’t forget VAT
Sole traders can (and often do) register for VAT. You must register if your taxable turnover goes over the VAT registration threshold (£90,000 in a 12-month period).
Need Further Support?
If you have any questions or just want to double check, for peace of mind, that you're doing the right thing, feel free to get in touch and simply ask.
Businesses across Kent and the South East of London frequently rely on the brilliant support of the team at Blue Rocket Accounting. Give us a call today on 01322 555442, we look forward to hearing more about your business.
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