One of the main benefits of becoming self-employed is the ease with which you can get started in business.
You can even become a sole trader (another term for self-employed) while working for someone else.
So you can test the water and see whether working for yourself suits you.
What’s in this guide?
Here are fifteen steps to take when you become self-employed for the first time – we last updated this guide in July 2025.
- Decide to go self-employed
- Choose a name for your new business
- Register as self-employed with HMRC
- Income tax and self-assessment
- National insurance contributions
- Should you register for VAT?
- Do you need licences or permits?
- Open a business bank account
- Make sure you’re adequately insured
- Keep accurate and up-to-date financial records
- Choose accounting software or get help
- Promote your new business and build visibility
- Understand your pricing and get paid properly
- Plan for quiet months and build a cash buffer
- Stay on top of key tax dates and deadlines
1. Decide to go self-employed
The first big decision you’ll face is whether to become self-employed or trade through a limited company.
Each option has its pros and cons, depending on how much you expect to earn, the type of work you do, and your appetite for administrative tasks and taking risks.
Most small businesses in the UK start as sole traders. It’s the simplest structure, and very simple to set up. Over 3 million people in the UK currently work this way.
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.
But it’s worth understanding the tax and liability differences between the two types of business structure before you take the leap.
Read our comparison guide: Should I set up as a sole trader or limited company?
2. Choose a name for your new business
Choose a name that reflects what you do and how you want to appear to the world. You may want to include your name or location in the name.
Unlike a limited company, there’s no central register of sole traders, nor strict naming rules. But we still recommend you check the Companies House register to avoid name clashes.
Search for a matching domain name simultaneously – ideally, you’ll secure both together. Your business name will appear on invoices and paperwork, so take your time.
3. Register as self-employed with HMRC
When you set up as a sole trader or partner in a partnership, you become responsible for paying income tax and National Insurance on your profits.
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You must register as self-employed with HMRC. This must be done by 5th October in your second tax year.
For example, if you start trading in January 2025, you must register by October 5th, 2025. Tax years run from 6th April to 5th April the following year.
More help: Self Assessment registration deadline explained.
4. Income tax and self-assessment
If you’re self-employed, you must complete a Self Assessment tax return every year. This tells HMRC how much you earned, what your costs were, and how much tax and NICs you owe.
The deadline is 31st January, following the end of the tax year.
You can submit your tax return online yourself or hire an accountant to do it for you. Either way, keep clear and accurate records and don’t leave it to the last minute.
You can also claim allowable business expenses to reduce your tax bill – things like phone bills, office costs, travel, and software. See our guide to sole trader expenses.
5. National insurance contributions
Self-employed people must pay National Insurance at self assessment time. There are two types of NI:
- Class 4 NICs: 6% on profits between £12,570 and £50,270, and 2% on profits above that.
- Class 2 NICs: From April 2024, these are only paid voluntarily if your profits are below £6,725 per year. If your profits are higher, you’ll get the benefits without needing to pay.
Check current NIC rates on GOV.UK.
6. Should you register for VAT?
If your turnover exceeds £90,000 in any 12-month period, you must register for VAT. You should also register if you expect to exceed this threshold soon. The threshold is reviewed annually in April and typically increases by a few thousand each year.
You may also choose to register voluntarily – for example, to reclaim VAT on purchases or appear more professional.
The Flat Rate VAT Scheme is often simpler for small businesses, but it might be worth chatting to an accountant to work out the best VAT scheme to use for your circumstances.
More help: When to register for VAT
7. Do you need licences or permits?
Some trades and professions need specific licences or registrations. For example, gas engineers must be on the Gas Safe Register.
You might also need permission for street trading, selling alcohol, or processing personal data.
Use this official tool to check: Gov.uk licence finder
8. Open a business bank account
Even as a sole trader, it’s wise to keep your personal and business finances separate. Most banks offer startup accounts with 12 to 18 months of free banking.
You can also use a challenger bank like Tide, which offers free digital business accounts and quick setup.
If you’re holding funds for the long term, you may also consider opening a business savings account to earn interest. Compare options here.
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9. Make sure you’re adequately insured
As a business owner, you must comply with legal (or contractual) requirements to have certain insurance policies in place.
If you employ another person, even if it is only an occasional part-timer, you are legally required to take out employers liability insurance.
Most small businesses take out public liability insurance, especially if customers visit you on your premises or if you undertake work on their property.
It will protect you if a third party injures themselves or damages property because of your business activities.
If you provide any professional service or advice to clients, you should also consider taking out a professional indemnity policy. It will cover you if a client sues you because they are unhappy with the work you have done or advice you have given.
ByteStart’s complete guide to sole trader insurance will help you work out what other insurance policies you might want to consider.
10. Keep accurate and up-to-date financial records
To be a successful sole trader, you must keep on top of your books.
You must keep clear and accurate records of all your business transactions from the start.
Keeping such records will ensure that you keep the tax authorities happy. It is much easier to operate your business if you are organised and keep your paperwork constantly updated.
Our beginner’s guide to setting up accounts for a sole trader will help you understand your accounts.
Online accounting software – such as the excellent FreeAgent – is now used by many small businesses to help simplify their accounting. Your accountant can easily log in and complete their side of the bargain.
11. Choose accounting software or get help
Cloud-based accounting tools like FreeAgent or Xero help you track income, expenses, and prepare for tax.
They sync with your bank and can help you comply with Making Tax Digital.
MTD for Income Tax starts in April 2026 for sole traders earning over £50,000, and in 2027 for those earning over £30,000.
If you’d rather not handle accounts yourself, a local or online accountant can take care of everything for a fixed monthly fee.
12. Promote your new business and build visibility
Once you’re set up, the next step is to find new customers. You don’t need a full marketing plan – make a start:
- Buy a domain name and create a simple website. You can do this with minimal technical expertise these days!
- Set up a Google Business Profile if you serve local clients – almost everyone uses Google as a first port of call.
- Use LinkedIn or social media to share what you do; Facebook remains a popular platform for many small firms.
- Join trade directories or freelancer platforms to spread the word about your new business.
Building visibility early can help you get your first few customers or clients more quickly. Once you’re established, you can rely more on word of mouth, which is the ultimate marketing tool.
13. Understand your pricing and get paid properly
Many new sole traders undervalue their time or fail to set clear payment terms. Think about:
- How you’ll price your services (hourly, day rate, fixed fee)
- Whether you’ll require deposits or upfront payments
- Setting clear terms for invoicing and late payment
Using software that helps with quotes and invoices (like FreeAgent or Xero) will save time and ensure you look professional.
Invoicing tips for small businesses
14. Plan for quiet months and build a cash buffer
Freelance and self-employed income can be very unpredictable. It’s wise to build a small buffer early on – even £500-£1,000 – so you’re not caught out by:
- Late-paying clients
- Seasonal downturns
- Unexpected bills or tax
Cashflow is one of the main reasons small businesses struggle in their first year. In fact, running out of cash has always been the number one reason why perfectly good businesses fail.
Cash flow tips for small businesses
15. Stay on top of key tax dates and deadlines
Once you’ve registered with HMRC, they won’t chase you every step of the way. You’ll need to know:
- When to file your first tax return (31 Jan)
- When payments on account are due (31 Jan & 31 Jul)
- If you need to register for Making Tax Digital in 2026 or 2027
Keeping track of these dates yourself is essential to avoid fines or surprise tax bills. If you’re using accounting software, it’ll usually remind you automatically, so you don’t miss a deadline.
Self Assessment tax deadlines explained
Self-employed FAQs
Can I go self-employed if I’m on PAYE at my main job?
Yes, you can be employed and self-employed simultaneously. You’ll pay tax through PAYE on your salary, and submit a Self Assessment return for your self-employed income.
Do I need a separate phone or laptop for my business?
Not necessarily, but if you use a device for both work and personal use, you can only claim a portion of the cost as a business expense. Keeping work and personal use separate helps simplify your accounting.
What if I earn very little in my first year?
There’s no minimum income required to be classed as self-employed. But if your annual profits are below the personal allowance, you may not owe any tax. You still need to register and file a tax return if you’re trading.
Is it worth registering for VAT before I hit the threshold?
Possibly. If your customers are VAT-registered businesses, they won’t mind paying VAT, and you can reclaim VAT on your own costs. But it means more admin, so get advice first. Some sole traders benefit from the Flat Rate Scheme.
Can I claim a portion of my rent or mortgage?
If you work from home, you can claim a portion of your household costs – including rent, utilities, broadband and council tax – based on how much of your home is used for work. HMRC also offers a simplified flat-rate option.
Do I need a business plan to become self-employed?
No – there’s no legal requirement. But having a basic plan can help you stay focused, especially when managing your time, pricing, and marketing. It doesn’t need to be formal – just something that keeps you on track.
What happens if I make a loss?
If your business makes a loss, you won’t pay income tax. In some cases, you may be able to carry that loss forward or offset it against other income. An accountant can advise if you qualify.
Do I need to tell HMRC as soon as I start?
No – you don’t need to register with HMRC immediately. You have until 5th October in your second tax year to let them know you’ve started trading. However, it’s a good idea to register early to avoid any last-minute issues.
What if I start working before I’ve registered?
You’re still classed as self-employed from the day you begin trading, even if you haven’t registered yet. Make sure you keep records and invoices from day one – you’ll need them for your tax return.
What if I only take on one or two freelance jobs?
If you’re earning money from work you do for yourself, HMRC may still view you as self-employed, even if it’s occasional. If you earn more than £1,000 from self-employment in a tax year, you must register and file a return.
Do I need to register a business name?
No – there’s no official register for sole trader business names. But you should check your name isn’t too similar to a limited company on the Companies House register, and consider buying a matching domain name.
Can I start a business in the evenings and weekends?
Yes. Many people build a side business around a full-time job. Just make sure you have the right to do so in your employment contract, and keep your self-employed income well-documented for tax purposes.
What admin do I need to do in the first few weeks?
At a minimum: keep records of income and costs, raise proper invoices, and note your business start date. You don’t need to register with HMRC immediately, but you do need a reliable record-keeping process from day one.
Will HMRC send me anything once I register?
Yes – you’ll receive a Unique Taxpayer Reference (UTR) by post. This is essential for filing your Self Assessment return. You’ll also get reminders about filing deadlines and payment dates once you’re registered.
Do I need to register if I sell online occasionally?
If you sell products online – even casually – HMRC may still view you as trading. If your sales exceed £1,000 in a tax year, you must register. Learn more about HMRC’s badges of trade.
More useful ByteStart guides
- How to register as self-employed – a more detailed guide to the steps you need to take.
- Self-employed tax – a more detailed guide to self-assessment and other taxes.
- Sole trader tax calculator – work out your post-tax income using this handy tool.
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