Self-employed record keeping: a practical guide.

Do you need to tell HMRC you are self-employed?

You can start trading before you register. But once your trading income goes over £1,000 in a tax year, you must register for Self Assessment as a sole trader. The first £1,000 is covered by the trading allowance, a tax exemption for small amounts of trading income.

The deadline to tell HMRC is 5 October after the end of the tax year you need to file for. For the 2025/26 tax year, which ended on 5 April 2026, that date was 5 October 2026. If you started in the 2026/27 tax year, do not leave it until the last minute. Registering early gives you time to get your Unique Taxpayer Reference and set up your online account.

You can trade under your own name or choose a business name. Either way, you are the business, and its profit is your income.

What records HMRC expects you to keep

HMRC says you must keep records from the day you start trading. These records are what let you work out whether you made a profit or a loss. GOV.UK lists the following:

• Sales and income. Every invoice you raise and every payment you receive.
• Business expenses. Receipts and bills for what you spend running the business.
• VAT records, if you are VAT registered.
• PAYE records, if you employ anyone.
• Personal income records, such as other jobs, savings or rent, because they all go on the same tax return.

Keep your records for at least 5 years after the 31 January submission deadline for the tax year they relate to. So records for 2026/27, with a deadline of 31 January 2028, should be kept until at least 31 January 2033.

Not sure which costs count? Our guide to which expenses you can claim when self-employed goes through them.

Cash basis or traditional accounting

There are two ways to record your income and costs.

• Cash basis. You record income when the money arrives and costs when you pay them. GOV.UK describes this as the standard way for sole traders to keep their books.
• Traditional accounting. You record income and costs by the date you invoiced or were billed, even if the money has not moved yet.

Most sole traders stay on the cash basis because it matches the bank account. If you want traditional accounting, you can choose it, and you say so on your Self Assessment return. We compare the two in more detail in cash basis or traditional accounting.

Set up your books so they look after themselves

Good bookkeeping is mostly about habits set up on day one. A few choices make the rest of the year much easier.

Keep business money in one place

GOV.UK's sole trader set-up steps do not require a separate bank account. Even so, a dedicated account for the business is one of the most useful things you can do. When personal shopping and business costs are mixed together, every line has to be sorted by hand, and mistakes creep in.

Use bookkeeping software

Software such as Xero, QuickBooks, Sage or FreeAgent can pull in your bank transactions every day. You then match each line to an invoice or receipt and give it a category. Apps such as Dext let you photograph a receipt and send it straight into your books.

Software is also becoming a requirement for many sole traders. More on that below.

Keep the paperwork with the transaction

A bank line on its own does not tell you, or HMRC, what you bought. Attach the receipt or invoice when the payment goes through. A note of what a cost was for, written at the time, saves a lot of guessing later.

Split costs that are part personal

If you use your phone, car or home for both work and private life, only the business share is a business cost. Decide how you will work out that share, write the method down and apply it the same way each year.

A simple weekly routine

Bookkeeping goes wrong when it waits until January. A short routine each week keeps it under control:

• Match every new bank line to an invoice or receipt
• Chase any receipts you are missing while you still remember the purchase
• Send invoices as soon as work is done and note who has not paid
• Check that anything personal has been marked as personal
• Look at your profit so far, so the tax bill is not a surprise

The key dates each year

The tax year runs from 6 April to 5 April. The current tax year, 2026/27, runs from 6 April 2026 to 5 April 2027. For the 2025/26 tax year, the deadlines are:

• 5 October 2026: tell HMRC if you need to file a return and have not done so before
• 31 October 2026: paper tax returns must reach HMRC by 11:59pm
• 31 January 2027: online tax returns must be sent, and any tax owed paid, by 11:59pm

The same pattern repeats each year, one year on.

How much tax you pay on your profit

Your profit is your income minus your allowable expenses. You pay Income Tax and National Insurance on it, together with any other income you have.

Income Tax for 2026/27

Most people have a Personal Allowance of £12,570, which is tax-free. Outside Scotland, the rates are:

• Basic rate, 20%: £12,571 to £50,270
• Higher rate, 40%: £50,271 to £125,140
• Additional rate, 45%: over £125,140

The Personal Allowance goes down by £1 for every £2 of income over £100,000. Scotland has different bands.

National Insurance for 2026/27

Class 4 National Insurance is 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.

Class 2 is £3.65 a week. If your profits are £7,105 or more, Class 2 is treated as paid, so you do not have to pay it. Below that, you can choose to pay it voluntarily.

Payments on account

Once your Self Assessment bill reaches a certain size, HMRC usually asks you to pay towards next year's bill in advance. These are payments on account. For the self-employed they include Class 4 National Insurance. Each one is half of the tax you owed for the previous year, due by midnight on 31 January and 31 July.

You do not have to make them if last year's bill was less than £1,000, or if more than 80% of your tax was already paid outside Self Assessment, for example through PAYE.

In the made-up example above, the next two payments on account would be £2,265.90 each. In the year they first apply, the January bill can be large: the balance for the past year plus the first payment for the current one.

Making Tax Digital for Income Tax

Making Tax Digital for Income Tax changes how many sole traders keep records. Instead of one return a year being the only contact with HMRC, you keep digital records in compatible software and send quarterly updates. If you would rather hand it over, see our done-for-you bookkeeping for sole traders.

Whether you need to join depends on your qualifying income from self-employment and property:

• From 6 April 2026: qualifying income over £50,000 in the 2024/25 tax year
• From 6 April 2027: qualifying income over £30,000 in the 2025/26 tax year
• From 6 April 2028: qualifying income over £20,000 in the 2026/27 tax year

The standard quarterly update deadlines are 7 August, 7 November, 7 February and 7 May. If you keep your books up to date anyway, each update is mostly a matter of checking and sending. Read more in what Making Tax Digital means for the self-employed.

Keep an eye on the VAT threshold

You must register for VAT if your taxable turnover for the last 12 months goes over £90,000. You must also register if you expect to go over £90,000 in the next 30 days alone. The check is on a rolling 12 months, not the tax year, so it is worth looking at your turnover every month as you get closer.

Common mistakes to avoid

• Leaving all the bookkeeping until the return is due
• Mixing personal and business spending in one account
• Losing receipts, then having no evidence if HMRC asks
• Claiming the whole cost of something used partly for personal reasons
• Forgetting about payments on account when planning cash
• Not noticing turnover creeping towards the VAT threshold

Almost all of these come from the same cause: the books are done in a rush, long after the money moved.