Step 1 — Register with HMRC
You need to register as self-employed with HMRC. Do it as soon as you start trading, and by 5 October of your second tax year at the latest. You'll receive a Unique Taxpayer Reference (UTR).
Step 2 — Open a separate bank account
Even though you're not legally required to as a sole trader, a separate business account is dramatically simpler for bookkeeping and tax. Digital banks open accounts in minutes.
Step 3 — Decide your records system
You can use a spreadsheet, but if you'll be affected by MTD for Income Tax (from April 2026, above the threshold) you'll need MTD-compatible software anyway. Better to start as you'll continue.
- Record every invoice / income with date, customer, amount.
- Record every expense with date, supplier, category, amount. Keep the receipt.
- Reconcile against your bank statement at least monthly.
Step 4 — Know your allowable expenses
Don't undersell yourself. Home-office costs, mileage, software, training that maintains existing skills, professional subscriptions — all common and missed. Our 9 missed expenses article covers the most overlooked.
Step 5 — Save for tax as you go
Transfer a percentage of every payment (a sensible starting point is 25–30%) into a separate savings pot. By 31 January you should have your tax bill covered. This single habit prevents more sleepless nights than any other.
If your first tax bill is over the threshold, HMRC will ask for two payments on account for the next year (in January and July). They feel like double tax in year two — they aren't, they're advances. Plan cash flow accordingly.
Step 6 — Get MTD-ready
If your turnover is above the MTD-for-Income-Tax threshold, you'll need to file quarterly digital updates from your start date (or the April 2026 phase-in if you began earlier). Pick MTD-compatible software now so the rhythm starts naturally.
Step 7 — Your first Self Assessment
Your first Self Assessment covers the tax year 6 April to 5 April. File online by 31 January following that tax year, and pay the bill at the same time. Filing early gives you certainty months ahead and a better chance of fixing anything in time.
An IGI sole trader plan from £45/mo includes your Self Assessment, MTD software and unlimited support — usually saving more in expenses claimed than it costs. See sole trader plans.