How to Set Up as a Sole Trader in the UK: Step-by-Step Guide (2026)

What is a sole trader?

A sole trader is the simplest way to be self-employed in the UK. You run your business as an individual — there is no company, no Companies House registration, and no separation between your personal and business finances in the eyes of the law. You keep all the profit after tax, and you are personally responsible for any debts.

The vast majority of UK freelancers — designers, developers, writers, consultants, photographers, tradespeople — start as sole traders. It is free to set up, takes about ten minutes to register, and has far less ongoing admin than running a limited company.

If you are weighing up sole trader versus limited company, read our comparison guide first. For most people starting out, sole trader is the right call.

Before you register

You need a few things before you sit down to register:

Your National Insurance number — printed on your NI card, P60, or any previous HMRC correspondence. If you do not know it, you can find it via your personal tax account at gov.uk
A Government Gateway account — the online portal for all HMRC services. If you already use it for personal tax, use the same account. If not, create one at gov.uk — you will need a form of ID (passport or driving licence) to verify it
The date you started (or intend to start) trading — HMRC asks for this during registration. If you have already done some paid work, use the date of your first job
A business description — a brief description of what you do, e.g. “freelance graphic design” or “software development consulting”

You do not need a business plan, a bank account, or a trading name before you register.

How to register with HMRC

Registering as a sole trader means telling HMRC you are self-employed so they can set up your Self Assessment account. Here is the process step by step:

Go to gov.uk and search “Register as self-employed” or navigate to the Self Assessment registration page
Sign in with your Government Gateway user ID and password. If you do not have one, select “Create sign in details” and follow the identity verification steps
Select “I am a sole trader” as your business type
Enter your start date, your business description, and your contact details
Submit the form — this is the equivalent of the old CWF1 paper form, now done entirely online

The whole process takes around 10 minutes. HMRC will write to you within 10 working days with your Unique Taxpayer Reference (UTR) — a 10-digit number that identifies your Self Assessment account. Keep this safe; you will use it every time you file a tax return.

When is the deadline to register?

You must register by 5 October in the second tax year of your self-employment. So if you started freelancing in the 2025/26 tax year (any time between 6 April 2025 and 5 April 2026), you must register by 5 October 2026. Missing this deadline can result in a penalty — so register as soon as you start earning.

In practice, it is better to register immediately. The earlier you register, the sooner HMRC sets up your Self Assessment record, and you avoid any last-minute scramble around the October deadline.

After you register

Once your UTR arrives, HMRC will have set up a Self Assessment account in your name. You will be able to:

File your Self Assessment tax return each year (deadline: 31 January online)
View your tax bill and payment history
Update your contact details and business information

Your first tax return will cover the tax year in which you started. For example, if you registered in September 2025, your first return will cover the full 2025/26 tax year and must be filed by 31 January 2027.

Read our Self Assessment guide for a full breakdown of deadlines, expenses, and what to expect.

Tax and National Insurance

As a sole trader, you pay Income Tax on your profits (income minus allowable expenses) and National Insurance contributions. Both are calculated through Self Assessment — you do not have tax deducted automatically as you would under PAYE.

Income Tax

You get a Personal Allowance of £12,570 (2025/26) — profit below this is tax-free. Above that:

Basic rate: 20% on profit from £12,571 to £50,270
Higher rate: 40% on profit from £50,271 to £125,140
Additional rate: 45% above £125,140

National Insurance

Class 2 NIC: included in your Self Assessment calculation if profits exceed £6,845 — this counts toward your State Pension entitlement
Class 4 NIC: 6% on profits between £12,570 and £50,270; 2% above £50,270

The golden rule: set aside tax as you earn

Unlike employees, you receive your income gross — no tax is deducted at source. A common mistake is spending the lot and then facing a large bill in January. Set aside 25–30%of every payment you receive into a separate savings account. This covers Income Tax, Class 4 NIC, and — after your first year — payments on account toward next year's bill.

Do you need to register for VAT?

No — not unless your VAT-taxable turnover exceeds £90,000 in any rolling 12-month period. If you are just starting out, VAT registration is unlikely to be required immediately.

However, voluntary registration can be worth considering if your clients are mostly VAT-registered businesses. For a full explanation, read our VAT for freelancers guide.

Your trading name

As a sole trader, you can trade under your own name or a different trading name — your choice. There are a few rules:

You cannot use “Limited”, “Ltd”, “LLP”, or “PLC” in a sole trader trading name
You cannot use a name that is the same as or very similar to an existing registered trademark
Sensitive words (like “Royal”, “NHS”, “Bank”) require permission
You do not need to register your trading name anywhere — you simply start using it

On your invoices, you must display your own name alongside any trading name. So if you trade as “Pixel Studio” but your name is Jane Smith, your invoices should read something like “Pixel Studio (Jane Smith)” or “Jane Smith trading as Pixel Studio”.

Business bank account

You are not legally required to have a separate business bank account as a sole trader. However, keeping business money separate from personal money makes bookkeeping significantly easier — and your accountant will thank you.

At minimum, open a free or low-cost business account and send all client payments to it. Digital-first banks like Starling Business and Monzo Business offer free accounts for sole traders with no monthly fee and solid mobile apps. Read our guide to business bank accounts for a full comparison.

Keeping records from day one

HMRC requires you to keep records of all your income and business expenses. Starting good habits early saves hours of pain at Self Assessment time. You need to keep:

All invoices you send to clients
All receipts for business purchases (even small ones — software, stationery, travel)
Bank statements
Mileage logs if you drive for work

Records must be kept for at least five years after the 31 January filing deadline for the relevant tax year. Digital records are perfectly acceptable — paper is not required.

A simple system: one folder of invoices, one folder of receipts (scanned or photographed), and a basic spreadsheet tracking income and expenses by month. Or use software that does this automatically.

Insurance to consider

As a sole trader, you have unlimited personal liability. Insurance does not remove that liability, but it protects you financially if something goes wrong:

Professional Indemnity (PI) insurance — covers you if a client claims your work caused them financial loss. Highly recommended for designers, developers, consultants, and anyone who gives professional advice. Many clients require it before signing a contract
Public Liability insurance — covers personal injury or property damage to third parties. More relevant if you visit client sites or have clients visit you
Business equipment insurance — covers your laptop and equipment if lost, stolen, or damaged. Check whether your home contents policy already covers home-office equipment

PI insurance for most freelancers costs between £100–£400 per year depending on your profession and the cover level. It is usually a deductible business expense.

Your first invoice

Once you have completed your first piece of work, you need to invoice your client. A valid UK invoice for a non-VAT-registered sole trader must include:

A unique invoice number
Your name (and trading name if different), and your address
The client's name and address
The date the invoice is issued
A description of the work done
The amount charged
Your payment terms (e.g. “Payment due within 14 days”)
Your bank details (sort code and account number)

For a full breakdown of invoice requirements, see our complete UK invoicing guide.