Set up and register as self-employed
Tax matters
As a sole trader you will have to pay income tax on any profits from your business. You must fill in a self-assessment tax return each year, detailing your income and expenses. See our guide on tax returns for the self employed.
Make sure you register as self-employed with HM Revenue & Customs (HMRC) as soon as you start up in business on your own. If you fail to do this within the first three full months of becoming self-employed, you may have to pay a penalty of £100. Download a form to register as self-employed from the HMRC website (PDF, 61K) - Opens in a new window.
National Insurance
You'll have to make flat-rate Class 2 National Insurance contributions (NICs) throughout the year - £2.40 a week for 2009-10. HMRC recommends paying your Class 2 NICs by direct debit. Setting up a monthly direct debit is easy, it runs automatically, helps your budgeting and gives you peace of mind.
If your annual profits are over a certain amount - £5,715 in 2009-10 - you will also have to pay Class 4 NICs. You pay these along with your income tax - the amount you have to pay is calculated from your self-assessment tax return. See the following guides for more information:
- Class 2 National Insurance contributions
- Class 4 National Insurance contributions
- National Insurance: the basics
You can also use our interactive tool to identify what National Insurance contributions you must pay.
VAT
If your business has - or you expect it to have - a turnover of more than £68,000 a year, you must charge your customers VAT and send it to HMRC. Use our interactive tool to find out if you need to register for VAT.
Employees
Sole traders can take on employees just like any other business. If you do, you will need to collect income tax and NICs from them and pay these to HMRC. You will therefore need to operate a PAYE (Pay As You Earn) payroll.
Keeping records
You must keep all the financial records you will need to fill in your tax returns. For a list of the requirements, see our guide on how to set up a basic record-keeping system.
The construction industry
Special rules apply to subcontractors in the construction industry. Download a guide to the Construction Industry Scheme from the HMRC website (PDF, 296K) - Opens in a new window.
Get help
Use our interactive tool to get a beginner's guide to tax and accounts rules.
HMRC Business Support Teams can give you practical advice. Find your local Business Support Team on the HMRC website - Opens in a new window.
You could also ask an accountant to help you with your tax returns or use one of the commercially available software packages.
Subjects covered in this guide

HMRC Newly Self-Employed Helpline
0845 915 4515
HMRC New Employer Helpline
0845 60 70 143

Actions
- Download a form to register as self-employed from HMRC (PDF, 61K) - Opens in a new window
- Find your local HMRC Business Support Team - Opens in a new window
- Introduction to VAT from HMRC - Opens in a new window
- Use our interactive tool to get a beginner's guide to tax and accounts rules
- Use our interactive tool to find out which legal structure is right for your business
- Use our interactive tool to find out about the main online transactions you can make with government
- Manage your personal list of starting-up tasks with our Business start-up organiser



