A sole trader can file their own tax return, and millions do. The question is not whether it is possible but whether the time and the missed deductions cost more than the fee — and for a trader turning over more than a modest amount, they usually do. The calculation changed again when Making Tax Digital arrived, because the obligation stopped being one return a year and became quarterly.
What being a sole trader actually commits you to
There is no separation between you and the business. The profits are your income, the debts are your debts, and the liability is unlimited — a distinction that matters far more than the tax difference when something goes wrong. Registration with HMRC is required once trading income exceeds the £1,000 trading allowance, and the obligations that follow are:
- A self assessment return each year, reporting the profits of the accounting period along with all other income;
- Income tax on profits above the personal allowance — 20%, 40% or 45% for a trader taxed at the rates for England, Wales and Northern Ireland, with a different set of bands and rates for a Scottish taxpayer — with payments on account in January and July that catch out almost every trader in their second year, when eighteen months of tax falls due in a single month;
- Class 4 National Insurance on profits above the lower profits limit, with Class 2 now treated as paid where profits exceed the small profits threshold, preserving the state pension record without a separate charge;
- VAT registration once taxable turnover crosses the threshold on a rolling twelve-month basis — a test that is measured continuously, not annually, and is missed by traders who check once a year;
- Digital records and quarterly updates under Making Tax Digital for income tax, which began with the highest income band and phases down over the following years.
Where an accountant pays for itself
Four areas, in rough order of value.
Deductions actually claimed. Use of home as office on a properly calculated basis rather than the flat rate where the flat rate understates it; mileage or actual motoring costs, whichever is better and applied consistently; equipment through capital allowances or the annual investment allowance; professional subscriptions, insurance, software, and the proportion of phone and broadband genuinely used for the business. Individually small, collectively a material reduction in taxable profit — and each one has to survive the "wholly and exclusively" test, which is where a trader claiming aggressively gets into difficulty and a trader claiming timidly leaves money behind.
The basis on which profits are taxed. Sole traders now report profits on a tax year basis, which for a business with a non-March year end changed the computation and, for some, brought forward a slice of taxable profit with transitional spreading. Getting the transition and any overlap relief right is a one-off exercise with a permanent effect.
Cash basis or accruals. The cash basis is now the default for unincorporated businesses: simple, cash-flow friendly, and usually the wrong answer for a business carrying stock or giving significant credit, because it measures profit on money moved rather than work done. The old objection about losses has gone: the rule blocking cash basis losses from being set against other income applied to 2013/14 through 2023/24 and was repealed from 2024/25, so sideways relief is now available on the normal terms. The choice still deserves a decision rather than a default.
Payments on account and cash planning. Not a tax saving, but the single most common cause of distress — a trader who did not know the January bill included the first instalment of next year's tax. Where profits have fallen, the payments can be reduced on application; where they have risen, the shortfall is better known in advance.
When to stop being a sole trader
Incorporation is worth modelling, not assuming. A limited company pays corporation tax at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between, and the owner then pays personal tax on what they extract — dividends at 10.75%, 35.75% or 39.35%, or salary through PAYE with employer National Insurance at 15% above £5,000.
The honest summary: at modest profits, the difference is small and the extra compliance cost eats it. As profits rise, and particularly where some can be retained in the company rather than drawn, the company gets ahead. Non-tax factors often decide it anyway — limited liability, the credibility of a company number with larger customers, the ability to bring in a shareholder, and the fact that a company can be sold as a company — shares, contracts and history intact — whereas a sole trade is sold by transferring its assets and goodwill, which is a workable route but a more awkward one to document and price.
What to expect from the relationship
The useful test of an accountant for a sole trader is not the price of the return. It is whether you know your tax liability before January, whether someone tells you when a threshold is approaching rather than after it is crossed, and whether the bookkeeping produces numbers you can run the business on rather than a shoebox reconciled once a year. Cloud bookkeeping has made that inexpensive enough that the old trade-off — accurate records or affordable ones — has largely gone.
Acumon works with sole traders through sole trader accounting and self assessment, with cloud accounting set up so the quarterly obligations are a by-product of normal bookkeeping rather than a separate job four times a year. If you have never modelled the incorporation question, that is worth an hour once your profits pass the point where the answer might have changed.