First Self Assessment for a Sole Trader: A Practical UK Guide for 2025/26

When is your first Self Assessment due?

Self Assessment works by tax year rather than by the anniversary of when you started your business.

The UK tax year runs from 6 April to 5 April.

For example, suppose you started trading on 15 July 2025. Your first Self Assessment return would normally cover your relevant income from 15 July 2025 to 5 April 2026.

You would not normally submit that return in July 2026 simply because you had been trading for one year.

For a new sole trader reporting the 2025/26 tax year, the main dates are:

HMRC confirms these filing and payment dates in its Self Assessment deadlines guidance.

You can file before January. In fact, filing earlier can give you much more time to understand your tax bill and budget for payment.

Do all new sole traders need to complete Self Assessment?

Not necessarily.

You generally need to register as a sole trader for Self Assessment if your gross trading income exceeds £1,000 during the tax year.

The important word is gross.

If you received £8,000 from customers and had £5,500 of business expenses, your gross trading income is still £8,000. Your £2,500 profit does not determine whether you crossed the £1,000 registration threshold.

If your gross trading income is £1,000 or less, the trading allowance may mean you do not need to report that income in many circumstances.

However, exceptions exist. For example, you might still register if you need to claim a trading loss, make voluntary Class 2 National Insurance contributions or meet another relevant requirement.

You can use HMRC’s Self Assessment registration checker if you are unsure.

How do you register for your first Self Assessment?

A sole trader registers through the Self Assessment system.

For a first return covering 2025/26, you should normally tell HMRC by 5 October 2026 if you meet the registration conditions. Registering late can potentially result in a penalty.

You will need a National Insurance number to register as a sole trader. Once your Self Assessment record is set up, HMRC provides a Unique Taxpayer Reference, usually called a UTR.

A UTR is a 10-digit tax reference that identifies your Self Assessment record.

Do not leave registration until the final days before you want to file. Getting the administrative side sorted earlier gives you more time to deal with any problems.

If you have previously been registered for Self Assessment but did not file a return last year, you may need to reactivate your account rather than starting again.

What information do you need for your first sole trader tax return?

Your Self Assessment is not simply a total of the money that entered your bank account.

You need records that support the figures you report.

HMRC says self-employed people should keep records covering areas such as:

• all business sales and income;
• business expenses;
• receipts and purchase invoices;
• bank statements;
• sales invoices and other evidence of income;
• VAT records where applicable;
• PAYE information if you employ people; and
• relevant personal income information.

You normally do not send all your receipts to HMRC with your return. However, you need to keep sufficient records to calculate your figures and support them if HMRC asks questions later.

HMRC’s self-employed record-keeping guidance explains the requirements in more detail.

Self-employed records generally need to be retained for at least five years after the relevant 31 January submission deadline.

Do you only report your sole trader income?

No.

Self Assessment looks at your wider tax position, not just your business.

For example, someone may have spent the first half of the year in employment and then become self-employed.

Their return may therefore need information covering both:

• PAYE employment income and tax already deducted; and
• self-employed income and allowable business expenses.

Other income may also need to be reported depending on the circumstances.

This is why someone moving from employment into self-employment should keep their P45 or P60 and other relevant tax documents.

Which business expenses can you claim?

Allowable business expenses can reduce the profit on which a sole trader is taxed.

Depending on your business, qualifying expenses might include:

• business phone and software costs;
• office expenses;
• advertising and marketing;
• business insurance;
• stock or raw materials;
• eligible travel costs;
• staff or subcontractor costs;
• business premises costs; and
• qualifying professional or training costs.

The key point is that personal expenditure is not automatically deductible simply because it passed through a business bank account.

Where an expense has both personal and business use, you may only be able to claim the appropriate business element.

You can read HMRC’s guidance on allowable self-employed expenses for the detailed rules.

Real Key Accountancy can also help organise income and expenses as part of its bookkeeping and accountancy services.

Should you use the £1,000 trading allowance instead?

If your gross trading income is above £1,000, you may in qualifying circumstances choose to deduct the £1,000 trading allowance instead of claiming actual business expenses.

You cannot generally claim the trading allowance and also deduct the same trade’s actual business expenses under that calculation.

Example:

Suppose your income is £12,000.

If your genuine allowable expenses are only £400, the £1,000 trading allowance might produce a lower taxable profit.

However, if you have £3,500 of allowable expenses, deducting the actual expenses could potentially be more beneficial.

The right approach depends on your records and circumstances.

How is your first sole trader tax bill calculated?

A basic starting point is:

business income − allowable expenses = business profit

Your taxable position then depends on your wider income, allowances and circumstances.

For the 2025/26 tax year, the standard Personal Allowance was £12,570. For England, Wales and Northern Ireland, the basic Income Tax rate was 20% on the relevant basic-rate band. Class 4 National Insurance for self-employed people was generally charged at 6% on profits between £12,570 and £50,270, with a 2% rate above the upper limit.

Example: a first-year sole trader with £30,000 profit

Assume a sole trader:

• has £30,000 taxable business profit;
• has no other taxable income;
• receives the full £12,570 Personal Allowance; and
• is subject to the main England, Wales or Northern Ireland rates.

Their taxable income after the Personal Allowance would broadly be:

£30,000 − £12,570 = £17,430

Income Tax at 20% would be approximately:

£3,486

Class 4 National Insurance at 6% on £17,430 would be approximately:

£1,045.80

That gives a combined illustrative figure of approximately £4,531.80 before considering anything else relevant to the person’s tax position.

However, the amount requested in January could be higher because of payments on account.

Why can your first Self Assessment bill feel unexpectedly large?

Payments on account are one of the most important things for a first-time sole trader to understand.

They are advance payments towards the following year’s Self Assessment bill, including relevant Class 4 National Insurance.

HMRC normally asks for two equal payments, due on 31 January and 31 July. Each is usually half of the previous year’s relevant Self Assessment liability.

You generally do not make payments on account if either:

• the relevant previous year’s tax was less than £1,000; or
• more than 80% of the tax was already collected outside Self Assessment.

Using the previous £4,531.80 simplified example, each payment on account could be approximately:

£2,265.90

So the first 31 January payment could potentially include:

• approximately £4,531.80 for the completed year; plus
• approximately £2,265.90 as the first payment towards the next year.

That would create a January payment of roughly £6,797.70, followed by another payment on account in July.

This is why saving only enough for the first year’s estimated tax can leave a new sole trader short of cash.

HMRC’s payments on account guidance explains how the system works.

What accounting method should a new sole trader use?

From the 2024/25 tax year, cash basis became the default accounting method for many sole traders. Under cash basis, income and expenses are generally recorded when money is actually received or paid.

Traditional accounting records income and expenses differently, including amounts owed but not yet paid.

Cash basis is often straightforward for small businesses, but it is not automatically the right method for every situation.

Whichever approach applies, consistent bookkeeping throughout the year makes your first Self Assessment much easier.

Real Key Accountancy’s bookkeeping packages for sole traders and small businesses include support with organising income, expenses and bank transactions.

Does Making Tax Digital affect your first Self Assessment?

Potentially.

Making Tax Digital for Income Tax began applying to the first mandatory group from 6 April 2026.

The current rollout is based on qualifying gross income from self-employment and property:

• over £50,000 based on 2024/25 qualifying income: from 6 April 2026;
• over £30,000 based on 2025/26 qualifying income: from 6 April 2027; and
• over £20,000 based on 2026/27 qualifying income: from 6 April 2028.

This is particularly relevant to someone preparing a first 2025/26 return. If your qualifying income exceeds £30,000 and the other conditions are met, that return may determine whether you need to start using Making Tax Digital from 6 April 2027.

Under MTD, affected taxpayers need compatible software for digital records and quarterly updates, as well as completing the required year-end tax process.

Common first Self Assessment mistakes to avoid

Your first tax return is easier if you avoid a few common problems:

1. Confusing income with profit. The £1,000 registration test looks at gross trading income, not profit.
2. Waiting until January to register. Registration and your UTR should be sorted before you are trying to submit the return.
3. Forgetting cash or platform income. All relevant business income needs to be included, not just bank transfers you remember.
4. Missing genuine business expenses. Poor records can result in legitimate costs being overlooked.
5. Claiming personal spending as business expenditure. A payment is not deductible simply because it came from the business account.
6. Forgetting PAYE income. If you were employed during the same tax year, your wider income may need to be included.
7. Ignoring payments on account. Your first January payment can be substantially higher than the tax for the completed year alone.
8. Leaving bookkeeping until the deadline. Twelve months of unclear transactions are much harder to investigate in January.
9. Ignoring MTD. Your first return may determine when future digital-reporting requirements begin.
10. Submitting without checking the calculation. Review the figures before pressing submit.

When should you get help with your first Self Assessment?

Many straightforward sole traders can complete their own returns.

Professional support may become more useful where:

• your bookkeeping is incomplete;
• you have several sources of income;
• you moved between PAYE employment and self-employment;
• you are unsure which expenses are allowable;
• your business has significant equipment or vehicle costs;
• you are VAT registered;
• CIS applies;
• you have property or overseas income;
• payments on account are unclear; or
• you may fall within Making Tax Digital.

Real Key Accountancy provides Self Assessment, bookkeeping, digital-record and other accounting support for sole traders and small businesses. You can review its accountancy services or, for local support, its sole trader accountancy service in Wolverhampton.

First Self Assessment sole trader checklist

If this is your first return, work through these points before filing:

• Confirm which tax year your business started in.
• Check whether your gross trading income means you need Self Assessment.
• Register with HMRC by the relevant deadline.
• Locate your UTR.
• Record all business income.
• Review your allowable business expenses.
• Gather employment or other income information where relevant.
• Reconcile your records against your bank and payment accounts.
• Check whether the trading allowance or actual expenses are appropriate.
• Review your Income Tax and National Insurance calculation.
• Check for payments on account.
• Confirm whether Making Tax Digital will affect the following tax year.
• Submit before the deadline.
• Keep enough money available to pay HMRC.