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 in the UK. You and your business are legally the same entity, meaning all profits after tax go directly to you, but you are also personally responsible for any business debts.
To begin, you register as self-employed with HMRC. Each year, you submit a Self Assessment tax return covering your business income, expenses, and total profit.
Key Facts for Sole Traders
- Legal status: you and your business are the same legal entity with no separation of personal and business liability.
- Setup: free to register online via HMRC's Self Assessment service.
- Registration deadline: by 5 October after the end of the tax year in which you started trading.
- Tax paid: Income Tax on profits plus Class 2 and Class 4 National Insurance contributions.
- VAT registration: mandatory once annual turnover exceeds £90,000 in any rolling 12-month period.
- Records required: all income and expense records for a minimum of 5 years after the submission deadline.
- Companies House filing: none required.
What Taxes Do Sole Traders Pay?
Sole traders pay Income Tax on profits above the Personal Allowance (£12,570 for 2025/26), along with Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% above that. Class 2 NIC is treated as paid once profits exceed the Small Profits Threshold of £6,845.
What Expenses Can You Claim as a Sole Trader?
Sole traders can deduct costs incurred wholly and exclusively for business purposes. Common allowable expenses include office and admin costs, business mileage at 45p per mile for the first 10,000 miles, the business proportion of phone and internet bills, marketing and advertising, professional fees, equipment, and the business proportion of home running costs if you work from home.
Making Tax Digital for Sole Traders
Making Tax Digital for Income Tax (MTD for ITSA) is HMRC's programme moving tax reporting from annual to quarterly digital submissions. From 6 April 2026, sole traders with qualifying gross income over £50,000 must file quarterly updates to HMRC using approved software. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028.
GoForma is fully MTD-compliant. FreeAgent, included free with every package, is HMRC-approved for MTD submissions. Your accountant configures everything, prepares each quarterly update, and submits to HMRC on your behalf.
Fixed Pricing, No Hidden Fees
All GoForma packages are priced clearly with no hidden extras and no long-term contracts. You choose the level of service that fits your business, pay a fixed monthly fee, and know exactly what is included. Get an instant online quote to see pricing for your situation.
