Self-Employed and Business Finances in the UK: A Step-by-Step Guide

Sole Trader or Limited Company

Should I be a sole trader or set up a limited company?

• Sole trader: simple to start and cheap to run. You and the business are legally the same, so you are personally responsible for its debts, and you pay Income Tax and National Insurance on the profits.
• Limited company: a separate legal body, so your personal assets are usually protected. It pays Corporation Tax, and you take money out as salary or dividends. There is more paperwork, including annual accounts filed at Companies House.

Many people start as a sole trader and change later. An accountant can compare the tax for your expected profits.

Registering and Paying Tax

How does tax work when you're self-employed?

Register for Self Assessment by 5 October after the end of the tax year in which you started. Then, on your profits for 2026/27:

• Income Tax: nothing on the first £12,570, 20% up to £50,270, 40% up to £125,140 and 45% above.
• Class 4 National Insurance: 6% on profits between £12,570 and £50,270, and 2% above.
• Class 2 National Insurance: no longer has to be paid. Once profits reach £7,105 it is treated as paid, protecting your State Pension record.

The online return and payment are due by 31 January. If last year's bill was £1,000 or more, you also make payments on account in January and July. Making Tax Digital for Income Tax applies from April 2026 if your qualifying income was over £50,000, and from April 2027 if it was over £30,000.

Separate Your Money and Keep Records

How do I keep business and personal money apart?

Use a separate account for the business, even as a sole trader. Move a share of every payment into a savings account for tax, so the January bill isn't a shock.

Keep records of all income and expenses for at least 5 years after the 31 January deadline for that tax year. You must register for VAT if your taxable turnover goes over £90,000 in any 12 months, or you expect it to in the next 30 days alone.

Pensions, Protection and Time Off

What does an employer usually cover that I now have to arrange?

• Pension: there is no employer contribution, but you get tax relief on payments into a personal pension or SIPP, up to £60,000 a year or your earnings if lower.
• Sick pay: there is no Statutory Sick Pay when you are self-employed. Income protection insurance pays a monthly income if illness stops you working.
• Maternity: Maternity Allowance pays up to £194.32 a week, or 90% of average weekly earnings if that's less, for up to 39 weeks.

When to Speak to a Financial Adviser

When does a growing business need regulated advice?

An accountant deals with your tax returns and business structure. A financial adviser deals with what you do with the money: how much to pay into a pension, whether a limited company should pay into it for you, what protection to buy, and how to invest profits.

Helena.finance lists FCA-regulated advisers who specialise in advice for women, mainly in the East and South East of England. Search by postcode on our find an adviser page. If you have used Helena, our AI assistant, and saved a Financial Snapshot, you can choose to attach it when you send an enquiry. Helena gives general information, not advice.