Self assessment tax return help for sole traders

When you start a business as a sole trader, you may need to file a tax return under Self Assessment.

This guide explains Self Assessment, who needs to file an annual tax return, and how you are taxed, together with lots more handy information.

For an overview of all the taxes you might pay as a sole trader, see our sole trader tax guide.

• What is Self Assessment?
• How do you register for Self Assessment?
• Do I need to fill in a tax return?
• When is my tax return due?
• Payments on account
• What paperwork should I get ready?
• How long should you keep your personal tax records for?
• What are the penalties if you miss the deadline?
• What happens if you make a mistake on your tax return?
• How an accountant can help

What is Self Assessment?

HMRC uses the Self Assessment system to enable individuals to report their annual income and calculate the amount of tax they owe.

Tax is automatically deducted at source via PAYE if you are a regular employee.

You must file a tax return each year if you are self-employed, receive untaxed income, or need to claim tax relief.

The system ensures that people accurately declare income from sources like business profits, investments, or rental properties and pay the correct amount of tax.

You must submit your tax return (and pay any tax owed) by 31 January for the previous tax year.

From April 2026, many sole traders will need to keep digital records and submit quarterly updates under Making Tax Digital.

How do you register for Self Assessment?

You must register by 5 October following the end of the tax year in which you became self-employed.

Once registered, you can submit your tax return online via your HMRC Self Assessment account. If you have an accountant, they can also do this on your behalf.

Steps to register for sole traders

1. Create a Government Gateway Account:
   • Go to the HMRC website and create a Government Gateway account if you don’t already have one.
2. Register as self-employed:
   • Register for Self Assessment and as a sole trader by filling out the online form on HMRC’s website.
3. Receive your Unique Taxpayer Reference (UTR):
   • HMRC will post your UTR within ten days. Make sure you allow sufficient time to receive your UTR and meet the deadline. Please read our UTR guide for more details.
4. Activate your Self Assessment Account:
   • Once you receive the UTR, you will also get an activation code for your Self Assessment account. Use this to complete the setup process and start filing tax returns.

Do I need to fill in a tax return?

The following people need to complete tax returns each year:

• If you are self-employed, whether as a sole trader or in a partnership.
• If you have income from savings, investments, property, or overseas investments.
• If you receive other untaxed income that isn’t collected at source, such as freelance work, income from a ‘side hustle’, or occasional work.
• If you earn over £150,000 a year.
• If you or your partner earns over £60,000 and receives Child Benefit, you may have to pay back some or all of it through the High Income Child Benefit Charge.
• If you must pay Capital Gains Tax (on property sales, shares, etc.).
• If you want to claim tax relief through schemes like the Enterprise Investment Scheme (EIS) or Venture Capital Trusts (VCT).
• If you live abroad and have UK income that needs to be taxed.
• If you receive income from trusts, estates, or settlements.
• If you’re an employee claiming work expenses that exceed £2,500 (for travel, professional subscriptions, etc.).
• If you receive dividends or savings interest above the annual allowances (Dividend Allowance or Personal Savings Allowance).
• Most limited company directors also need to complete a tax return, even if they only take a small salary and dividends.

In addition to these main groups, there are other, more select groups such as pension scheme trustees and ministers of religion – but we won’t include them all here.

When is my tax return due?

The deadline for submitting your tax return and paying any tax owed is 31 January for the previous tax year. If you are one of the few still submitting paper returns, these must be posted to HMRC by 31 October.

If you have tax to pay, you may also need to make payments on account (see below), which are advance payments towards next year’s tax bill.

Payments on account

Payments on account are advance payments towards your next year’s tax bill. They apply if your Self Assessment tax bill is over £1,000, unless more than 80% of your tax is deducted at source (for example through PAYE).

They are based on your previous year’s tax bill and split into two instalments:

• 50% by 31 January (alongside your balancing payment for the previous tax year)
• 50% by 31 July

Example: If your 2024/25 tax bill is £2,000, you would pay:

• £2,000 balancing payment for 2024/25 plus £1,000 first payment on account for 2025/26 by 31 January 2026
• £1,000 second payment on account for 2025/26 by 31 July 2026

If you expect your tax bill to be lower next year, you can apply to reduce your payments on account. However, if you reduce them too much and end up underpaying, HMRC will charge interest and possibly penalties.

What paperwork should you get ready before you complete your tax return?

• P60 Form (for employees):

  • Your year-end tax certificate shows total pay, tax, and National Insurance Contributions deducted.

• P11D (Benefits in Kind):

  • Given by employers if you received taxable benefits such as company cars or health insurance.

• Bank Statements:

  • Used to calculate income received and interest earned. Declare the gross amount of interest.

• Self-Employed Accounts:

  • Detailed records of income and expenses. Using accounting software like FreeAgent or Xero can simplify this.

• Untaxed Income:

  • Freelance work, side businesses, or rental property income.

• Dividends:

  • Declare any dividends from shares or unit trusts. See our dividend tax guide for details.

• Child Benefit:

  • If you earn over £60,000 and receive Child Benefit, you may need to repay some or all via the High Income Child Benefit Charge.

Keep your Self Assessment records for at least five years

Business owners must keep records of income and expenses for at least five years after the 31 January deadline of the relevant tax year.

What are the penalties if you miss the deadline?

If you miss the 31 January online filing deadline (or 31 October for paper returns), HMRC will charge penalties even if you have no tax to pay. The fines increase the longer you leave it:

• Immediately after the deadline: £100 fixed penalty.
• After 3 months: £10 per day, up to a maximum of £900.
• After 6 months: An extra 5% of the tax due, or £300, whichever is greater.
• After 12 months: Another 5% of the tax due, or £300, whichever is greater.

In total, late filing penalties can add up to £1,600 – even if your tax bill is zero.

If you also miss the 31 January payment deadline, further charges apply:

• 30 days late: 5% of the unpaid tax.
• 6 months late: another 5% of the unpaid tax.
• 12 months late: a further 5% of the unpaid tax.

HMRC will also charge interest on any unpaid amounts from the original due date until payment is made.

You can appeal a penalty if you have a reasonable excuse, such as serious illness, a bereavement, or HMRC system issues. Appeals must normally be made within 30 days of receiving the penalty notice, and you should provide evidence to support your case.

What happens if you make a mistake on your tax return?

You can amend your return within 12 months of the 31 January deadline. Log in to your online account, select the return, and make corrections. For paper returns, file a new return, marking it as an amendment.

An accountant can complete and file your tax return for you

It may be worth hiring an accountant to assist with your tax return, especially in more complex situations, such as those involving multiple income streams, investments, or capital gains. Many will charge between £150 and £300, plus VAT.