Step 1 โ Decide Your Business Structure
Before registering, decide whether to operate as a sole trader or set up a limited company. Most people starting out choose sole trader status โ it is simpler, cheaper to administer, and requires no Companies House registration. A limited company offers greater personal liability protection and potential tax efficiency at higher incomes, but comes with extra administrative requirements.
See PAYE vs Ltd company calculator or our sole trader tax guide to compare the options. You can always convert later.
Step 2 โ Register as Self-Employed with HMRC
As a sole trader, you register by telling HMRC you are self-employed. This must be done by 5 October following the end of the tax year in which you started. For example, if you started in July 2025, you must register by 5 October 2025.
Register online at gov.uk or through the HMRC app. You will need a Government Gateway account. After registering, HMRC sends your Unique Taxpayer Reference (UTR) by post โ this takes up to 10 working days. Full step-by-step details are in our guide on how to register as self-employed.
Step 3 โ Set Up Your Tax Administration
Once registered, put systems in place to manage your tax obligations from the start:
- โOpen a separate business bank account โ keeps personal and business finances clean
- โStart tracking income and expenses โ use a spreadsheet or accounting software from day one
- โSave for tax as you go โ set aside 20โ30% of every invoice payment into a separate savings account
- โKeep receipts and records โ HMRC requires records to be kept for at least 5 years after the 31 January submission deadline
Step 4 โ Understand What Tax You Will Owe
As a new self-employed person, you will pay income tax and National Insurance on your profits via Self Assessment. No tax is deducted automatically โ you calculate and pay it yourself each year. The key dates are 31 January (online return + tax payment) and 31 July (second payment on account, if applicable).
In year two, you may face a large payment because HMRC requires payments on account โ advance payments based on your first year's bill. This catches many people off guard. Budget for it from the start. Use our freelancer tax calculator to estimate your liability before year-end.
Step 5 โ Consider VAT Registration
If your taxable turnover exceeds ยฃ90,000 in any 12-month period, you must register for VAT. Below this, registration is voluntary but sometimes beneficial (reclaiming VAT on purchases, appearing more established to corporate clients). Start tracking your turnover from day one so you know when you are approaching the threshold.