One of the main benefits of becoming self-employed is how easily you can start and run your new business.
You don’t need anyone’s permission; there are no costly set-up fees to worry about, and in most cases you can start trading almost immediately.
You can even become a sole trader while working for someone else, so you can test the waters and see whether working for yourself is the right choice for you.
If you want to become self-employed, here are the main things you need to do:
- decide whether working as a sole trader is right for you
- register as self-employed with HMRC when required
- keep accurate records from the day you start trading
- understand Self Assessment, Income Tax and National Insurance
- check whether you need to register for VAT
- keep your business finances organised
- arrange any licences or insurance you need
Here’s what each step involves.
1. Decide whether to become self-employed
The first big decision you’ll face is whether to become self-employed as a sole trader or trade through a limited company.
Most people starting a small business begin as sole traders because it is the simplest structure to set up and run.
As a sole trader, you and the business are legally the same person. This keeps administration relatively straightforward, but it also means you are personally responsible for the debts and liabilities of the business.
If you want to keep things simple, test an idea or start a new venture alongside your normal job, going self-employed is often the most flexible option.
Read more: Should I set up as a sole trader or limited company?
2. Register as self-employed with HMRC
You are classed as self-employed from the day you start trading, even before you register with HMRC.
You generally need to register for Self Assessment if your gross trading income is more than the £1,000 trading allowance during the tax year.
If you need to register, the deadline is 5 October following the end of the tax year in which you started trading.
For example, if you start trading in January 2026, you would need to register by 5 October 2026.
Once registered, HMRC will issue you with a Unique Taxpayer Reference (UTR), which you will need when submitting your tax return.
Read our guide to registering as self-employed with HMRC.
3. Keep accurate records from day one
From the start, you should keep clear and accurate records of all your business income and expenses.
Not only will this help keep HMRC happy, but it will also make running your business much easier.
Keep copies of invoices, receipts, bank transactions and details of any business expenses you intend to claim.
You don’t have to use accounting software from day one, but many sole traders find it easier than relying on spreadsheets or paperwork.
Making Tax Digital for Income Tax is also changing the way some self-employed people report their income to HMRC, starting with those over the relevant income thresholds.
Our beginner’s guide to setting up accounts for a sole trader explains what records you need to keep.
4. Understand Self Assessment, Income Tax and National Insurance
When you are self-employed, you are responsible for declaring your profits and paying the tax due.
You will normally need to complete a Self Assessment tax return each year.
Your taxable profit is broadly your business income less allowable business expenses.
The online filing and payment deadline is normally 31 January following the end of the tax year.
You may also have to make payments on account towards the following year’s tax bill. These can catch new sole traders out because you may need to pay part of next year’s tax at the same time as settling the current bill.
Self-employed people may also pay National Insurance depending on their level of profits.
For the latest tax and NI rates and thresholds, see our sole trader tax guide.
5. Work out whether you need to register for VAT
You must register for VAT if your taxable turnover goes above £90,000 in any rolling 12-month period.
This is not based simply on your accounting year. You need to keep an eye on turnover as the business grows.
You can also choose to register voluntarily below the threshold. This can be worthwhile in some circumstances, particularly if most of your customers are VAT-registered businesses and you want to reclaim VAT on purchases.
VAT brings extra administration, so don’t register voluntarily without understanding the consequences.
Read more: When do you need to register for VAT?
6. Keep your business finances separate
As a sole trader, there is no general legal requirement to have a separate business bank account, although your bank’s own terms may restrict business use of a personal account.
If you are thinking of using an existing account, see can you use a personal bank account for your business?
In practice, keeping personal and business finances separate is usually a very good idea.
It makes bookkeeping much easier, gives you a clearer picture of how the business is performing and saves time when you prepare your tax return.
See our guide to business bank accounts for sole traders.
7. Make sure you have any licences and insurance you need
The licences, registrations and insurance you need will depend on the type of work you do.
Some trades and professions require specific licences, registrations or professional memberships. Depending on your business, you may also need permission from your local authority or another regulator.
If you employ anyone, you will normally need employers’ liability insurance.
Public liability insurance is common where you work at customers’ premises or members of the public visit you.
If you provide professional advice or services, professional indemnity insurance may also be worth considering.
Our sole trader insurance guide explains the main types of cover.
What else should you think about?
Once you’ve sorted the essentials, you can turn your attention to the practical side of running the business.
That might include choosing a business name, setting your prices, deciding how you will invoice customers, promoting your services and building up some cash for quieter months and future tax bills.
These things matter, but you don’t need to deal with them all before you start trading.
The important thing is to get the tax, record-keeping and legal basics right first.
Going self-employed FAQs
Can I be employed and self-employed at the same time?
Yes. You can be employed and self-employed at the same time.
You will usually pay tax on your salary through PAYE and report your self-employed income through Self Assessment.
Do I need to register if I only earn a small amount?
If your gross trading income is £1,000 or less during the tax year, the trading allowance may mean you do not need to register for Self Assessment because of that income alone.
Rules can vary depending on your circumstances, so check HMRC guidance if you are unsure.
Do I need a business bank account?
There is no general legal requirement for a sole trader to have a separate business bank account, but keeping business and personal transactions separate makes record keeping much easier.
You should also check whether your existing bank allows business transactions through a personal account.
Do I need a business plan before becoming self-employed?
No. You don’t need a business plan before you start trading.
A simple plan can still help you work out what you will sell, what you will charge, and how much you need to earn, but you do not need a formal document to become self-employed.