In the United Kingdom, becoming self-employed is a significant step for individuals looking to take control of their income and work independently. A sole trader operates their business as an individual, assuming both the financial and legal responsibilities.
While the process might appear complicated at first, registering as a sole trader through HM Revenue and Customs (HMRC) is relatively straightforward when the right steps are followed.
This article provides a complete 2025 guide on how HMRC registers self-employed sole traders, along with insights into tax responsibilities, deadlines, and legal requirements.
What Is a Self Employed Sole Trader in the UK?
A sole trader is an individual who runs a business independently and is personally responsible for its operations, profits, and liabilities. This business structure is the most common in the UK and is particularly popular with freelancers, consultants, and small-scale service providers.
Unlike limited companies, sole traders are not legally distinct from their businesses. This means the owner keeps all profits but is also responsible for any debts or legal actions the business may incur.
A sole trader is required to submit a Self Assessment tax return to HMRC each year, declaring income and calculating taxes owed based on profits.
This model suits those looking for simplicity, minimal paperwork, and direct control. It allows individuals to test a business idea without dealing with the complexities of incorporation or corporate governance.
Why Choose to Become a Sole Trader Instead of Setting Up a Limited Company?
Choosing between sole trader status and forming a limited company often comes down to administrative burden, tax flexibility, and risk tolerance.
For many starting out, the sole trader model provides flexibility without the overhead of registering with Companies House or hiring an accountant for statutory accounts.
The key difference lies in liability. Sole traders have unlimited liability, meaning they are personally responsible for business debts. On the other hand, limited companies offer legal separation between the individual and the company, which provides limited liability protection.
However, sole traders enjoy full control over decision-making, keep all profits after tax, and only need to file one annual tax return.
They also avoid corporation tax and company filings. This makes the setup particularly appealing to new entrepreneurs, side hustlers, and service-based businesses.
When Do You Need to Register as a Sole Trader with HMRC?
You must register as a sole trader with HMRC if you earn more than £1,000 from self-employment in a tax year (6 April to 5 April). This threshold applies to gross income, not profits. Even if your profits are low, if your total income exceeds £1,000, you’re required to register.
There are additional reasons to register even if earnings are below this level. You may need to prove self-employment for benefits such as Tax-Free Childcare or to make voluntary National Insurance contributions that count towards your State Pension.
| Tax Year | Deadline to Register |
| 2024–2025 | 5 October 2025 |
| 2025–2026 | 5 October 2026 |
Failure to register by the 5 October deadline can result in penalties and interest on unpaid tax.
How Does HMRC Register as Self Employed Sole Trader in the UK?
The process of registering as a sole trader is handled through the HMRC Self Assessment system, which can be accessed online through a Government Gateway account.
Step-by-Step Registration Process
Create a Government Gateway Account
To start, visit the HMRC website and register for a Government Gateway user ID, which is your secure login for all online HMRC services.
Register for Self Assessment as a Sole Trader
After logging in, select the option to register as self-employed. This involves completing a form with your business and personal information.
Provide the Necessary Information
HMRC will ask for:
-
- National Insurance number
- Business start date
- Business name (if applicable)
- Type of work you do
- Contact details
Receive a Unique Taxpayer Reference (UTR)
HMRC will post your UTR number within 10–15 working days. This is a ten-digit number you’ll use to submit your tax returns.
Activate Your Self Assessment Account
Once your UTR arrives, you will receive an activation code in a separate letter. Use it to activate your account and begin managing your taxes online.
Sole traders must then submit their Self Assessment tax return annually, with the filing deadline on 31 January following the end of the tax year.
What Documents and Information Are Needed to Register?
The documents required to register are minimal. The most important requirement is a National Insurance number, which confirms your right to work and pay tax in the UK.
You’ll also need:
- Your full name and date of birth
- UK address and contact details
- Business start date
- Nature of your business
- Optional business name
You are not legally required to register your business name unless you want to trademark it. However, your trading name must not contain restricted terms (like “Ltd”) or be misleading.
What Are the Legal and Financial Responsibilities of a Sole Trader?
Sole traders have unlimited liability, meaning personal assets could be at risk if the business incurs debt or legal action. As a result, many opt for business insurance to protect against unexpected claims.
Key Financial Responsibilities
- Filing an annual Self Assessment
- Paying Income Tax, Class 2, and Class 4 National Insurance
- Registering for VAT if annual turnover exceeds £90,000 (2025 threshold)
- Keeping accurate business records for at least five years
Failing to meet these responsibilities can result in penalties, interest charges, and in severe cases, legal action by HMRC.
How Long Does It Take to Register and Is There a Cost Involved?
Registering as a sole trader is free of charge. Once you submit your registration, HMRC typically sends your UTR number within 10–15 working days.
| Method | Processing Time |
| Online Submission | 5–10 working days |
| Postal Submission | Up to 15 working days |
While HMRC registration is free, you may incur costs for business insurance, accounting software, or professional advice, all of which are usually tax-deductible.
Can Someone Be Employed and a Sole Trader at the Same Time?
Yes, you can be both employed and self-employed at the same time. Many people run small businesses or freelance in their spare time while holding a full- or part-time job.
In this situation:
- Your employer deducts PAYE tax from your salary
- You report your self-employment income separately through Self Assessment
It’s advisable to check your employment contract to ensure there are no restrictions on additional work, especially if it could create a conflict of interest.
What Taxes Does a Sole Trader Pay?
Sole traders are responsible for paying tax on net profits, which is income minus allowable business expenses. The main taxes include:
| Tax Type | 2025 Threshold | Rate or Amount |
|---|---|---|
| Income Tax | £12,570 Personal Allowance | 20% to 45% depending on income |
| Class 2 NI | Profits over £6,725 | £3.45 per week |
| Class 4 NI | £12,570 – £50,270 profit | 9% |
| VAT | Turnover over £90,000 | Must register and charge VAT |
Scotland has different Income Tax bands, but National Insurance and VAT thresholds remain consistent UK-wide.
How Should Sole Traders Keep Records and Pay Their Taxes?
Sole traders must keep clear records of income, expenses, bank statements, and receipts to calculate taxable profits accurately. These records should be stored for at least five years after the 31 January deadline of the relevant tax year.
Paying Your Taxes
- Submit your Self Assessment online by 31 January
- Pay any tax owed by the same date
- If you owe more than £1,000, HMRC may require Payments on Account in advance for the next tax year
To simplify record-keeping, many use accounting software like FreeAgent or QuickBooks, which is MTD (Making Tax Digital)-compatible.
Conclusion
Becoming a sole trader in the UK is one of the most accessible ways to start a business. With minimal setup time, full control over operations, and a straightforward tax process, it suits a wide range of entrepreneurs.
While the process is simple, there are legal and financial obligations to be aware of. Registering with HMRC, keeping good records, and paying the correct tax on time are key to staying compliant and avoiding penalties.
Understanding how HMRC registers self-employed sole traders ensures you begin your journey with clarity and confidence.
Whether you’re starting a side hustle, offering professional services, or turning a passion into profit, this structure gives you the flexibility to succeed in 2025 and beyond.
FAQs
What is the deadline to register as a sole trader?
You must register by 5 October following the end of the tax year in which you started trading.
Is registering with HMRC free?
Yes, there is no charge to register as a sole trader.
Do I need to register if I earn under £1,000?
Not necessarily, but it’s recommended if you want to claim benefits or build NI contributions.
Can I have a trading name?
Yes, but it must not include restricted terms or be misleading.
When are taxes due?
By 31 January each year for the previous tax year.
Can I be employed and self-employed at once?
Yes. Your PAYE job and sole trader income are taxed separately via Self Assessment.
Do I pay both Class 2 and Class 4 National Insurance?
Yes, if your profits exceed the relevant thresholds.
Leave a Reply