Starting a business, your tax and admin checklist

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Your first steps

1. Choose your structure. Sole trader for simplicity, or a limited company for liability protection and potential tax efficiency.
2. Register with HMRC. Register for Self Assessment as a sole trader, or for corporation tax if you form a company.
3. Separate your money. Open a business bank account and keep personal spending out of it.
4. Set up records. Simple bookkeeping from day one, digital and ready for Making Tax Digital.
5. Plan for tax. Set money aside as you earn, and know when VAT and payroll will apply as you grow.

Telling HMRC, and by when

If you start working for yourself you must register for Self Assessment by 5 October following the end of the tax year in which you began. Start trading in June 2026, which falls in the 2026/27 tax year, and your deadline is 5 October 2027.

Register earlier than that if you can. Your Unique Taxpayer Reference, the ten digit number you need to file, arrives by post about 15 days after you register, and longer if you live abroad. Leaving registration until the deadline and then filing in January is a tight run.

Missing the notification deadline is a penalty based on the tax you owed, not a flat fee. If you come forward yourself before HMRC contacts you, and within 12 months of the tax being due, the penalty can be reduced to nothing. If HMRC finds you first, it starts at 10% of the tax and climbs from there. Telling them voluntarily is always cheaper.

The £1,000 you can ignore

There is a trading allowance of £1,000 a year. If your gross self employed income for the tax year is £1,000 or less, you generally do not need to register or tell HMRC at all. There is a separate £1,000 property allowance for rental income, so someone with both could have £2,000 covered.

Above £1,000 you have a choice each year: deduct the £1,000 allowance instead of your actual expenses, or claim your actual expenses. If your costs are low, the allowance usually wins. You cannot do both.

One correction worth making, because it circulates constantly: the £3,000 figure people mention is an announced reporting threshold that is not yet in force, and even when it arrives it is a reporting change, not a tax free amount. The figure that applies today is £1,000. HMRC has publicly rebutted the £3,000 claim.

Cash basis is now the default

This changed for the 2024/25 tax year and a lot of guidance still has not caught up.

Under the cash basis you record income when you are paid and expenses when you pay them. It is now the standard method for sole traders and partnerships without corporate partners. Traditional accruals accounting is still available, but you now have to elect into it rather than out of it.

Three restrictions that used to apply have gone entirely:

• The turnover limits for entering and leaving cash basis, previously £150,000 and £300,000, no longer exist.
• The £500 cap on interest deductions has been removed, so normal wholly and exclusively rules apply.
• The loss restriction has gone, so cash basis losses can now be used in the same ways as accruals losses.

Cash basis is not available to limited companies, or to partnerships with a corporate partner.

Keep the records, and keep them long enough

Sole traders must keep business records for at least 5 years after the 31 January submission deadline for the tax year concerned. So records for 2026/27 have to survive until 31 January 2033.

What that means in practice is a separate bank account from day one, receipts kept as you go rather than reconstructed later, and a note of business mileage as it happens. None of this is difficult in month one and all of it is miserable in month eighteen.

What you will pay, and when

Your first tax bill is due by 31 January after the end of the tax year. If it comes to more than £1,000, you also start making payments on account: half the bill again on that same 31 January, and the other half by 31 July.

That means your first January can carry roughly one and a half years of tax at once. It is the single most common cash flow shock for new businesses, and it is entirely predictable. Set money aside from each payment you receive from the start.

You are outside payments on account if last year's bill was under £1,000, or if more than 80% of your tax was already collected at source, typically through PAYE.

Sole trader or limited company at the start

Most people are better off as a sole trader in year one. It is simpler, cheaper, and you can incorporate later once you know what your profits actually look like. Incorporating early, before you know whether the business works, adds filings and cost for a saving that may not exist yet.

One thing on the horizon

Making Tax Digital for Income Tax is being phased in on qualifying income, which is turnover before expenses from self employment and property. Over £50,000 joined in April 2026, over £30,000 joins in April 2027 and over £20,000 in April 2028. If you expect to grow past £20,000 of turnover, choosing software now rather than a spreadsheet saves you a migration later.

Frequently asked questions