What is a Sole Trader
A sole trader is a self employed person who owns and runs a business as an individual. It is the simplest and most common business structure available in the UK.
In this structure, the business and the owner are legally the same entity. If you’re a sole trader, all profits after tax go straight to you. But if the business gets into debt, you’re personally responsible for paying it back.
To begin, you’ll need to register as self-employed with HMRC. Each year, you must submit a Self Assessment tax return which includes your business income, expenses, and total profit.
Many freelancers, consultants, tradespeople, and online sellers start as sole traders as it is easy to start and requires less administration compared to running a limited company.
Key Facts at a Glance
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Legal status
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You and your business are the same legal entity — no separation of personal and business liability
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Setup cost
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Free — register online via HMRC's Self Assessment service at gov.uk
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Registration deadline
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By 5 October after the end of the tax year in which you started trading
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Tax paid
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Income Tax on profits + Class 2 & Class 4 National Insurance Contributions
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VAT registration
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Mandatory once annual turnover exceeds £90,000 in any rolling 12-month period
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Records required
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All income and expense records for minimum 5 years after the 31 January submission deadline
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Companies House filing
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None required — sole traders do not file at Companies House
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Do Sole Traders Need an Accountant
There’s no legal rule requiring sole traders to use an accountant, but many choose to. It just simplifies things.
A reliable accountant for sole trader can handle your Self Assessment tax return, record income in organised way, and identify tax reliefs that could reduce your tax bill. If you skip professional help, you might overlook expenses you can claim or make mistakes in your calculations, both of which could result in overpaying tax or getting fined by HMRC.
For many self-employed professionals, the cost of an accountant is small compared to the time they save and the tax they may reduce.
The Real Cost of Not Having a Sole Trader Accountant
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Late self assessment penalty
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£100 automatic fine the day you miss the 31 January deadline. Daily charges of £10 apply after 3 months (up to £900). 5% of tax owed added at 6 months, and again at 12 months.
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Missed allowable expenses
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A sole trader earning £50,000 who overlooks £5,000 of legitimate expenses overpays roughly £2,000 in Income Tax and NICs — far more than a year's accountant fee.
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Incorrect VAT
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HMRC can charge a penalty of up to 30% of underdeclared VAT, plus interest from the original due date.
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HMRC tax enquiry
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Without professional representation, an HMRC enquiry typically takes 12–16 months. With an accountant who knows your records: usually resolved in weeks.
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Time cost
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HMRC estimates the average unrepresented sole trader spends 10–15 hours per year on their tax return. With GoForma: effectively zero.
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Payments on account shock
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In year two of self-employment, HMRC requires advance payments of next year's tax. Without an accountant's warning, this catches many sole traders off guard with a bill 150% larger than expected.
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GoForma's dedicated sole trader accounting starts from £39 + VAT per month which is less than £1.30 per day. For most sole traders, a single correctly claimed expense or avoided penalty more than covers the entire cost of their annual accountant.
What Does a Sole Trader Accountant Do
A sole trader accountant provides financial support and tax expertise for self employed individuals. Their role usually includes several key services.
Self Assessment tax returns
Sole trader accountants prepare and submit annual tax returns to HMRC using accurate financial data. This helps sole traders meet deadlines and avoid penalties.
Bookkeeping and financial records
They keep your business transactions organised throughout the year which makes it easy to review the financial information.
Tax planning and advice
Accountants review profits and expenses to find legal ways to reduce your tax bill.
Business expense management
They identify allowable expenses that sole traders can claim to reduce taxable profit.
HMRC communication
If HMRC asks questions about a tax return, accountants can assist with responses and documentation.
What Taxes Do Sole Traders Pay in the UK?
As a sole trader, you pay tax on your business profits. Here’s what you can expect:
Income Tax
You pay income tax on your profits after expenses, and the tax rate depends on your individual income tax band.
Class 2 National Insurance
For the 2025/26 tax year, the Small Profits Threshold is £6,845. If your profits are £6,845 or more, your Class 2 National Insurance is treated as paid, so you do not need to make payments but you still receive National Insurance credits. If your profits are below £6,845, you can choose to pay £3.50 per week voluntarily to help protect your entitlement to benefits such as the State Pension.
Class 4 National Insurance
Class 4 National Insurance is based on your business profits and is paid through the Self Assessment tax return. For the 2025/26 tax year, you pay 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.
Value Added Tax (VAT)
If your annual turnover goes over the £90,000 VAT registration threshold, you must register for VAT.
What Expenses Can You Claim as a Sole Trader?
What Expenses Can You Claim as a Sole Trader?
As a sole trader, you can deduct any expense incurred 'whollyand exclusively' for the purpose of your business from your taxable profits. Every pound of legitimate expense you claim reduces the income HMRC taxes you on. HMRC's rules are specific, but the range of allowable expenses is broad.
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Expense Category
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What You Can Claim — Examples
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Office & admin
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Stationery, printer ink, postage, software subscriptions (accounting, project management, creative tools), accountancy and bookkeeping fees
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Travel & transport
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Business mileage at 45p per mile (first 10,000 miles), then 25p per mile. Public transport fares for work trips. Parking on business visits. Not commuting to a fixed workplace.
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Phone & internet
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The business-use proportion of your mobile phone bill. Broadband costs (business proportion if used at home). A dedicated business line in full.
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Marketing & advertising
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Website hosting and domain fees, social media advertising, Google Ads, business cards, brochures, directory listing fees, PR costs, SEO tools.
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Professional fees
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Accountant and bookkeeper fees, solicitor and legal fees, professional indemnity insurance, public liability insurance, professional body memberships (CIPD, RIBA, ICB, etc.).
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Equipment & tools
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Laptops, computers, cameras, specialist tools and machinery. Either in full in year of purchase (Annual Investment Allowance) or as capital allowances over time.
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Clothing — uniform only
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Protective work clothing (PPE, safety boots) and branded uniforms. Everyday clothing — even if worn only for work — is not allowable.
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Home office
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A reasonable proportion of heating, electricity, and broadband if you work from home regularly. HMRC provides a simplified flat rate, or you can calculate the actual business proportion.
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Staff costs
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Wages and salaries paid to employees, employer National Insurance contributions, pension auto-enrolment contributions, and staff training costs.
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Financial costs
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Business bank account charges and fees, interest on business loans, HP finance charges on business assets.
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Training & development
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Courses and training that improve your skills in your current trade or profession. Training for a completely new career is not allowable.
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Not sure if a cost qualifies as a business expense? GoForma’s sole trader accountants review your expenses throughout the year, not just before your tax return deadline. They highlight anything you may have missed and make sure you claim every expense allowed by HMRC.
Making Tax Digital for Sole Traders — What You Need to Know in 2026
Making Tax Digital for Sole Traders - What You Need to Know in 2026
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC's programme to move tax reporting from annual to quarterly submissions, using HMRC-approved digital software. Instead of filing one self assessment tax return each January, sole traders within scope must now keep digital records and submit a summary of income and expenses to HMRC quarterly, followed by a Final Declaration at year-end that replaces thetraditional annual return.
The programme launched for VAT-registered businesses in 2019.It is now being extended to Income Tax for sole traders and landlords, startingfrom 6 April 2026.
MTD Rollout Timeline
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Start Date
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Who it Applies to
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Qualifying Income Basis
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6 April 2026
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Sole traders & landlords with qualifying gross income over £50,000
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Based on 2024/25 self assessment tax return — approximately 780,000 people affected
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6 April 2027
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Sole traders & landlords with qualifying gross income over £30,000
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Based on 2025/26 return — a further 970,000 people estimated in scope
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6 April 2028
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Sole traders & landlords with qualifying gross income over £20,000
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Confirmed by HMRC in Autumn Budget 2024 — near-universal coverage for sole traders
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How GoForma Manages MTD for You
GoForma is fully compliant with Making Tax Digital for Income Tax. FreeAgent accounting software, included at no extra cost with every GoForma sole trader package, is one of the software options recognised by HMRC for MTD.
Your GoForma accountant connects your bank account to FreeAgent, monitors your transactions in real time, prepares each quarterly update, and submits it to HMRC on your behalf. You do not need to log in to the HMRC portal, learn new processes, or worry about deadlines. Your accountant manages, tracks, and submits every quarterly update for you.
Your Sole Trader Accounting, Sorted
Handling your own accounts can be a serious drain on your time and energy. Why not leave the number crunching to us at GoForma? We’re more than just online accountants for sole traders; we actually understand the rollercoaster of running your own business as a sole trader.
Thousands of sole traders across the UK trust GoForma to manage their accounts, file their tax returns, handle their MTD submissions,and keep them fully compliant with HMRC; all for a clear, affordable monthly fee with no long-term contracts and a 30-day money-back guarantee.
Book a free consultation today and see for yourself why so many business owners trust us to reduce their tax bills and keep things running like clockwork. If you’re after reliable, stress-free accounting, GoForma’s got your back.
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