How to Set Up as a Sole Trader with HMRC

If you're a tradesperson looking to work for yourself, setting up as a sole trader is usually the easiest way to start. This guide covers how to register with HM Revenue and Customs (HMRC), what you'll need to keep track of and the rules that apply specifically to trades work, such as the Construction Industry Scheme (CIS).

You need to keep in mind that you must register once you earn more than £1,000 from self-employment in a tax year, by 5 October after that tax year ends. You can start trading before you've registered.

What Is a Sole Trader?

A sole trader is the sole owner of their business, with full control over how it's run. UK law doesn't separate the business from the owner, so a sole trader has unlimited liability. This means your personal assets could be at risk if the business runs into debt.

Sole tradership is the most common way to run a business in the UK. Of the UK's 5.7 million private sector businesses, 3.2 million (56%) are sole proprietorships.

"Self-employed" and "sole trader" are not the same thing. Self-employed describes your tax status, while sole trader describes your business structure. You can be self-employed as a sole trader or through a partnership.

How to Set Up as a Sole Trader: Step by Step

Step 1: Check if You Need to Register

You must register if you earn more than £1,000 from self-employment in a tax year (6 April to 5 April). You can start trading before you register, but you must tell HMRC by 5 October after the end of the tax year you started in.

If you earn £1,000 or less, you may not need to register at all. This is covered by the £1,000 trading allowance, a tax exemption on the first £1,000 of gross trading income each year.

Step 2: Choose Your Business Name

You can trade under your own name or choose a business name. A few rules for naming your business apply:

• It must not include "limited", "Ltd", "limited liability partnership", "LLP", "public limited company" or "plc".
• It must not be offensive.
• It must not be too similar to another company's trademarked name (you may have to change it if someone complains).
• Your name and business name (if you use one) must appear on paperwork such as invoices and letters.

Step 3: Register for Self Assessment with HMRC

Registering as a sole trader means registering for Self Assessment. There's no separate business registration. You'll need a National Insurance number to register. Once complete, HMRC sends you a Unique Taxpayer Reference, which you'll use to file a Self Assessment return every year.

Step 4: Register for CIS if You Work for Contractors

If you work in construction for a contractor, the Construction Industry Scheme (CIS) applies. The contractor deducts money from your payments and passes it to HMRC as an advance towards your tax and National Insurance. The deduction is 20% if you're registered as a subcontractor, 30% if you're not. You can register as a CIS subcontractor at the same time as you register for Self Assessment. Some subcontractors qualify for gross payment status, meaning no deductions are made.

Step 5: Set Up Your Record-Keeping

Keep records of your business income and expenses for at least 5 years after the 31 January submission deadline for that tax year. For tradespeople, this generally means logging tools, materials, van costs, and work uniform from day one. Using an accountant or bookkeeping software can help you keep on top of this.

Step 6: Check Making Tax Digital

Sole traders registered for Self Assessment will need to use Making Tax Digital for Income Tax once their qualifying income passes a threshold: over £50,000 (already in force from April 2026), over £30,000 from April 2027, and over £20,000 from April 2028. It means keeping digital records, using compatible software, sending a quarterly update for each business and submitting your year-end return through the software.

Step 7: Sort Your Insurance

Public liability insurance is usually the first policy tradespeople take out. If you take on staff (a labourer, an apprentice or a part-timer), employers' liability insurance becomes a legal requirement, at a minimum of £5 million cover. Not having it can bring a fine of £2,500 for every day you're uninsured. Find out more about taking on staff.

Step 8: Check Whether You Need to Register for VAT

You must register for VAT once your taxable turnover goes over £90,000 in any 12-month period, or if you expect it to go over £90,000 in the next 30 days. You can register voluntarily below the threshold, for example to reclaim VAT on tools and materials.

What You'll Pay as a Sole Trader

Figures below are for the 2026 to 2027 tax year.

Income Tax

You pay no tax on the first £12,570 of profit (your Personal Allowance). After that, the basic rate of 20% applies up to £50,270, the higher rate of 40% applies up to £125,140, and the additional rate of 45% applies above that.

See the current Income Tax rates for full details. These bands cover England, Wales and Northern Ireland. Scotland sets its own Income Tax rates, but everything else, including National Insurance, VAT and Self Assessment deadlines, is the same across the UK.

National Insurance

Class 2 National Insurance is treated as paid once your profits reach £7,105 a year, with nothing extra to pay. Below that, you can pay voluntarily to protect your State Pension record. Class 4 applies once profits pass £12,570: 6% on profits between £12,570 and £50,270, and 2% above that. Both are calculated and paid through Self Assessment. Full self-employed National Insurance rates are on GOV.UK.

Deadlines and Payments on Account

The key dates are 5 October (tell HMRC you need to file), 31 October (paper returns), and 31 January (online returns and payment). If you make payments on account (advance payments towards next year's bill), a second payment is due by 31 July. These aren't required if your last tax bill was under £1,000 or if most of your tax is already collected another way, such as through PAYE.

For a fuller breakdown, see our tax guide for tradespeople.

Sole Trader or Limited Company?

A sole trader and a limited company are taxed and run differently. Here's how the two structures differ:

• Liability — as a sole trader, you and the business are legally the same, so your personal assets aren't protected if the business owes money. A limited company is a separate legal entity.
• Admin and Public Filing — a limited company's registered address, directors and accounts are on the public record at Companies House. A sole trader files nothing publicly. Your return goes to HMRC and stays between you and HMRC.
• Registration Cost — registering as a sole trader is free. Registering a limited company costs £100 online, or £124 by post.
• Tax — a sole trader pays Income Tax and National Insurance on profits. A limited company pays Corporation Tax instead, which can work out lower once profits reach a certain level.

The off-payroll working rules (IR35) apply to workers who provide services through an intermediary, such as a personal service company or partnership. They don't apply to a sole trader working directly for customers.

For the full comparison, see our sole trader vs limited company guide.

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