What being a sole trader means for your tax
A sole trader is a person who runs a business in their own name. There is no separate company. The business profit is your income, and you pay income tax and Class 4 National Insurance on it through self assessment. You keep everything the business earns after tax, but you are also personally responsible for its debts.
Many people start this way without really deciding to. A personal trainer takes on a few clients in South Park, a dog walker builds up regulars around Bishop's Park, a hairdresser goes mobile. At some point the money becomes a business, and HMRC expects you to register and report it. If you earn more than £1,000 a year from trading, you will usually need to register for self assessment and file a return.
Working out your profit properly
Your tax bill depends on profit, not on what came into your bank account. That means getting your allowable expenses right. Some are obvious, like stock, tools or software. Others need more care. If you use your car for both work and family, only the business share counts. If you work from a spare room in a flat off Fulham Palace Road, you can claim part of the running costs, or use HMRC's simplified flat rate instead.
Since 6/4/2024 the cash basis has been the default for sole traders. In plain words, you record money when it is actually paid or received rather than when you send an invoice. For most small businesses this is simpler. For some, especially those with large invoices that straddle the year end or big equipment purchases, the traditional accruals method can give a fairer picture. We look at which suits you and tell you why.
- Splitting personal and business use of mobiles, cars and home
- Claiming equipment and vans through capital allowances
- Using the £1,000 trading allowance where it beats real expenses
- Keeping receipts in a way HMRC would accept
What is included
- Registering you for self assessment with HMRC
- Annual accounts and profit calculation
- Self assessment tax return and filing
- Making Tax Digital setup and quarterly updates
- Advice on allowable expenses and capital allowances
- Payment on account planning and reduction claims
- VAT registration if you go over the threshold
- Sole trader versus limited company comparison
Making Tax Digital is now live for many sole traders
Making Tax Digital for Income Tax changes how you report. From 6/4/2026 sole traders with qualifying income over £50,000 must keep digital records and send quarterly updates to HMRC using compatible software. The threshold drops to £30,000 from 6/4/2027 and to £20,000 from 6/4/2028. Qualifying income means your turnover before expenses, so a busy cleaner or decorator can be caught even if their profit is much lower.
We set you up on software that works for you, connect it to your bank feed where possible, and either handle the quarterly updates ourselves or show you how to do them. You still send a tax return after the year end, but it goes through the same software, and the deadline is still 31/1.
Paying tax without nasty surprises
The first year of self employment often comes with a shock. Your first tax bill arrives on 31/1 after the tax year ends, and if it is over a certain level HMRC also asks for a payment on account towards the next year at the same time. That can mean paying roughly one and a half years of tax in one go. A second payment on account then falls due on 31/7.
We tell you what to expect well before the deadline and suggest a monthly amount to set aside. If your income drops, we can apply to reduce your payments on account so you are not paying more than you need to.
When to think about a limited company
Clients often ask whether they should switch to a limited company. There is no single profit figure where it always makes sense. A company pays corporation tax on its profits, and you then take money out through salary and dividends. That can work out cheaper once profits are steady and you do not need to take every pound out each year. It also brings more paperwork, public accounts at Companies House and stricter rules on how you use the money.
We run the numbers both ways using your real figures and explain the result plainly. Plenty of sole traders on North End Road and Fulham Broadway are better off staying as they are, and we will say so if that is the case for you.
How we work with sole traders in Fulham
We start with a free review of where you are now. That might be a carrier bag of receipts, a spreadsheet, or software that has not been touched since spring. We agree a fixed fee before any work begins, so you know the cost in advance. After that, you send us your records through the year and we keep an eye on deadlines for you.
Most of our sole trader clients live or work in SW6 and nearby areas such as Parsons Green, Sands End and Hammersmith. You can send everything online, and we can meet when it helps.
Who this suits
- People who have just started working for themselves
- Mobile trades and services such as cleaners, trainers and beauty therapists
- Sole traders with income over £50,000 now inside Making Tax Digital
- Anyone behind with tax returns who wants to catch up
- Sole traders wondering if a company would suit them better
Common questions
Do I need an accountant as a sole trader?
There is no legal requirement. Many sole traders choose one because getting expenses, payments on account and Making Tax Digital right takes time and knowledge. An accountant also helps you spot costs you can claim and avoid penalties for late or wrong returns.
When do I have to register as a sole trader?
You should register for self assessment by 5/10 after the end of the tax year in which you started trading. So if you started during the 2026/27 tax year, the deadline to register is 5/10/2027. Leaving it late can lead to penalties if tax ends up being paid late.
Can I claim for working from home as a sole trader?
Yes, you can claim a reasonable share of household costs such as heating and electricity for the space you use for work. HMRC also offers a simplified flat rate based on the hours you work at home each month. We work out which gives the fairer claim for you.
Does Making Tax Digital apply to me?
It depends on your qualifying income, which is your total turnover from self employment and property before expenses. From 6/4/2026 the scheme covers those with more than £50,000, falling to £30,000 from 6/4/2027 and £20,000 from 6/4/2028. We can check your position and set up the right software.
What happens if I have a job and a side business?
Your salary is taxed through PAYE as normal, and your business profit goes on a self assessment return. The two incomes are added together to work out your tax band, so a side business can push some of your income into a higher rate. We make sure the figures are reported correctly.
How much does an accountant cost for a sole trader?
It depends on how many transactions you have and how organised your records are. We review your situation for free and then agree a fixed fee before any work starts, so there are no surprises later.
Can you help if I have missed a tax return deadline?
Yes. We can prepare and file late returns, work out what is owed and help you deal with HMRC about penalties. The sooner a late return is filed, the less the penalties tend to grow.