As a sole trader, how much you earn before tax depends on the UK's £12,570 Personal Allowance, meaning profits up to this amount are tax-free, with income tax (0-45%) and National Insurance (NI) due on profits above that, varying by tax band, but you must register with HMRC if profits exceed £1,000, and NI thresholds are lower than Income Tax ones, affecting even smaller earnings.
In the UK, the standard Personal Allowance for self-employed and sole traders is £12,570. This is the amount of income you can earn in the 2025/26 tax year before you need to pay any Income Tax.
How much does a sole trader have to earn before paying GST?
Short answer. If you're registered for GST, you must charge and collect GST. Sole traders and businesses who estimate they'll make $75,000 or more in business income in any given 12-month period have to register for GST.
How much can a sole trader earn before paying VAT?
Do I need to register for VAT? Any business with a turnover of £90,000 or more over the last 12 months must register for VAT (from April 2025). This applies regardless of your business structure. If you're a sole trader and hit this threshold, you must register and start charging VAT.
How Do You Pay Yourself as a Sole Trader? (UK) | 2025
Do I need to tell HMRC I'm a sole trader?
Tell HM Revenue and Customs (HMRC) that you're self-employed and need to pay tax as a sole trader. You can do this by logging in to your Government Gateway account, or by creating an account if you don't already have one, or by post. Step 2. Complete the HMRC Self-Assessment form.
A person operating as a sole trader will need to register with HMRC for Self Assessment if they have trading income of £1,000 or more. This is the total from all unincorporated businesses, not per business.
If you're registered for GST, you can generally claim back any GST included in the price of things you've bought for your business. These are GST credits. If, for any tax period, your GST credits are higher than the amount of GST your business has to pay the ATO, you could get a refund.
In summary, the main advantages of setting up as a sole trader are: Quick and easy to set up, and minimal paperwork. Accounting can be simpler, and you're entitled to any profits. Privacy for your details and business accounts.
One-fifth of self-employed sole traders don't survive one year, and the majority don't survive five. Many more people try self-employment than the aggregate numbers suggest, but most fail quickly and very few ever go on to make significant investments or employ others.
The main disadvantages of being a sole trader include unlimited personal liability for business debts, making personal assets vulnerable; difficulty raising capital and investment; limited growth potential due to reliance on one person; sole responsibility for all tasks; potential for burnout from long hours; perception of lower credibility; limited tax planning options; business continuity issues if you stop working; potential for higher personal tax at high incomes; and difficulty attracting large contracts.
A sole trader is taxed on all business profits using personal income tax rates, ranging from 20% to 45%. They must file a self-assessment tax return annually. This includes paying for both income tax and National Insurance Contributions (NICs). NICs are split into Class 2 and Class 4, based on earnings levels.
The minimum income amount to file taxes depends on your filing status and age. For 2025, the minimum income for Single filing status for filers under age 65 is $15,750 . If your income is below that threshold, you generally do not need to file a federal tax return.
Most taxpayers will do anything they can to avoid tax audits. Filling out an accurate tax return is the best way to avoid an audit. Additionally, you should ensure you double-check your math and only claim legitimate tax deductions. E-filing may also be helpful.
'Sole trader' describes your business structure, while 'self-employed' is a way of saying that you don't work for an employer or pay tax through PAYE. Both terms are often used interchangeably: if you're self-employed then you're basically running a sole trader business.
Making Tax Digital for Income Tax is a new way for sole traders and landlords to report their income and expenses to HMRC. From 6 April 2026, sole traders and landlords must use it if their total annual income from self-employment and property is over £50,000.
