Your First Year as Self-Employed: The Complete Tax Guide

In your first year of self-employment in the UK, you must register for self-assessment with HMRC by 5 October following the end of your first tax year of trading, keep records of all income and allowable expenses, and set aside roughly 25 to 30% of your profits to cover the tax bill that nobody deducts on your behalf. That last point catches many new sole traders out: under PAYE, tax takes care of itself, but once you go self-employed, nothing is deducted automatically, and by the time the first tax bill arrives some find they have spent money they owe.

This first year self-employed tax guide UK covers everything a new sole trader needs: registering with HMRC, meeting the deadlines, understanding how your profits are assessed, claiming allowable expenses, and budgeting so the bill does not come as a shock. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, helps new sole traders get this right from day one.

Key Takeaways

• If you start trading in the 2026/27 tax year (6 April 2026 to 5 April 2027), you must register for self-assessment by 5 October 2027.
• Your first tax return, covering 2026/27, must be filed online and any tax paid by 31 January 2028.
• All sole traders are now assessed on a tax year basis (6 April to 5 April) following basis period reform.
• Set aside 25 to 30% of your profits as you earn them, because HMRC deducts nothing automatically.
• A sole trader with £40,000 net profit in 2026/27 faces around £7,132 in tax, plus a first payment on account that can push the January 2028 bill to roughly £10,698.
• Making Tax Digital for Income Tax applies from 6 April 2026 to those with qualifying income above £50,000, falling to £30,000 from April 2027 and £20,000 from April 2028.

How Do You Register with HMRC as a Sole Trader?

You register as a sole trader online through the Government Gateway as soon as you begin trading on a self-employed basis. From that moment you become responsible for reporting your income to HMRC through self-assessment.

You will need to set up a Government Gateway account if you do not already have one, then complete the self-assessment registration. HMRC will issue a Unique Taxpayer Reference (UTR), a ten-digit number used for all tax filings. Keep it safe and make a note of it.

If your annual turnover will exceed £90,000 (the VAT registration threshold in 2026/27), you must also register for VAT separately. Even if you are below this threshold, voluntary VAT registration can sometimes be beneficial, particularly if your clients are other VAT-registered businesses who can reclaim the VAT you charge.

What Is the Registration Deadline You Cannot Miss?

The most important early date for any new sole trader is 5 October in the year following the end of your first tax year of trading.

Starting sole trader tax obligations begin from the moment you start trading, but the first formal deadline is this October date. If you started trading at any point during the 2026/27 tax year (6 April 2026 to 5 April 2027), you must register for self-assessment with HMRC by 5 October 2027. Missing this deadline can result in a penalty, and registering late can delay the arrival of your UTR, which you need to file your return.

Your first tax return, covering the 2026/27 tax year, must then be filed online by 31 January 2028, with any tax owed paid on the same date.

How Are Sole Trader Profits Assessed for Tax?

Sole trader profits are assessed on a tax year basis, from 6 April to 5 April the following year. This applies regardless of what accounting period you choose for your business records.

Following the basis period reform that took effect from 2024/25, all sole traders now use the tax year as the basis for their tax assessment. For anyone starting self-employment from April 2024 onwards, the rules are straightforward: taxable profit is the profit earned during each tax year. If your accounting year end does not fall on 5 April, profits are apportioned across tax years to calculate the correct taxable amount.

Overlap profits, which featured in returns for traders who started before the reform with a non-April year end, have now been cleared for most businesses. New starters in 2026/27 will not encounter this issue.

What Expenses Can a New Sole Trader Claim?

You can claim any cost incurred wholly and exclusively for the purposes of your trade, and doing so is one of the most effective ways to reduce a tax bill legitimately. HMRC permits these deductions against your trading profits.

Common allowable expenses include office costs (stationery, software, equipment), travel and vehicle costs (mileage at HMRC's approved rates, or actual costs), marketing and advertising, professional fees including accountancy, and a proportion of home costs if you work from home. The simplified flat rate for home working is available, or you can claim a calculated proportion of actual household costs.

Meals and entertainment, personal clothing, and costs with a mixed personal and business use (except the business portion) are generally not allowable. Keep receipts and records for every expense claimed. Under Making Tax Digital for Income Tax (covered below), HMRC increasingly expects records to be maintained digitally from the outset, so building that habit early saves work later.

How Much Should You Budget for Your First Tax Bill?

Set aside 25 to 30% of your profits as you earn them, because nothing is deducted automatically throughout the year and new sole traders regularly underestimate the size of their first tax bill.

Consider a sole trader with net profits of £40,000 in 2026/27:

• Income tax: 20% on £27,430 (profits above the £12,570 personal allowance) = £5,486
• Class 4 National Insurance: 6% on £27,430 = £1,646
• Total tax due: £7,132

This amount falls due on 31 January 2028. However, HMRC also collects the first payment on account towards the 2027/28 tax year on the same date: half the 2026/27 liability, a further £3,566. That means the first payment to HMRC as a new sole trader could be approximately £10,698 in a single month. Many people are unprepared for this.

Setting aside a consistent proportion of every payment received, ideally in a dedicated savings account, is the simplest and most reliable way to stay on top of this.

Does Making Tax Digital Apply to New Sole Traders?

Making Tax Digital for Income Tax (MTD for IT) is now live, and from 6 April 2026 it applies to sole traders and landlords with qualifying income above £50,000, who must keep digital records and submit quarterly updates to HMRC, plus a final declaration by 31 January after the end of each tax year.

Those with qualifying income between £30,000 and £50,000 will be required to join MTD from April 2027, and those between £20,000 and £30,000 from April 2028.

If you are starting out and your income initially falls below these thresholds, MTD does not yet apply. But new self-employed HMRC expectations are clearly moving towards digital record-keeping for everyone. Setting up compatible software such as QuickBooks, Xero, or FreeAgent from day one costs very little and will make compliance straightforward when the threshold applies to you. It also makes it easier to track expenses and understand your profit position throughout the year.

Frequently Asked Questions

When do I have to register as self-employed with HMRC?

You must register for self-assessment by 5 October in the year following the end of your first tax year of trading. If you start trading during the 2026/27 tax year (6 April 2026 to 5 April 2027), the deadline is 5 October 2027. Registering late can delay your UTR and trigger penalties, so act early.

How much tax will I pay in my first year as a sole trader?

It depends on your profit. A sole trader with £40,000 net profit in 2026/27 pays £5,486 income tax plus £1,646 Class 4 National Insurance, totalling £7,132. HMRC also takes a first payment on account of £3,566 on the same date, so the January 2028 payment could be around £10,698.

How much money should I set aside for tax?

Set aside 25 to 30% of your profits as you earn them, ideally in a dedicated savings account. Unlike PAYE, nothing is deducted automatically when you are self-employed, so the full tax bill falls due on 31 January following the tax year, often alongside a payment on account that catches new traders out.

What expenses can I claim as a new sole trader?

You can claim costs incurred wholly and exclusively for your trade, including office costs, travel and mileage at HMRC rates, marketing, accountancy fees, and a proportion of home working costs. You cannot claim meals, entertainment, personal clothing, or the personal share of mixed-use costs. Keep receipts and records for every claim.

Do I need to use Making Tax Digital software straight away?

Not necessarily. From 6 April 2026, MTD for Income Tax applies to those with qualifying income above £50,000, dropping to £30,000 from April 2027 and £20,000 from April 2028. If you are below the threshold it does not yet apply, but setting up compatible software early makes future compliance straightforward.

How Blue Tick Can Help

Blue Tick Accountants helps new sole traders set up correctly from day one: registering with HMRC, choosing the right software, structuring expenses efficiently, and filing returns accurately and on time. The consequences of getting it wrong in year one, such as missed deadlines, underpayment, and poor records, tend to compound, which is why early advice matters. Head to our website and book a meeting now.

Conclusion

Getting tax right in the first year of self-employment sets the tone for everything that follows. Register on time by 5 October following your first tax year, keep clean digital records from the start, claim every allowable expense, and put aside 25 to 30% of your profits as you earn them. Those four habits prevent most of the problems Blue Tick Accountants sees in new sole traders who arrive after the fact, when deadlines have already been missed or money owed to HMRC has already been spent. With a £40,000 profit producing a January bill that can reach roughly £10,698 once the payment on account is added, the value of planning ahead is hard to overstate.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps newly self-employed people and sole traders across the UK register correctly, claim the right expenses, and plan for their first tax bill. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.