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Net pay as a sole trader is turnover minus expenses minus tax. The calculator on this site works out the last of those once you know the profit. The profit itself comes from records, and the tax bill arrives months after the money was earned. This article covers what to record, how long to keep it, and how to set aside the right share of each payment so that the bill does not come as a surprise.
What HMRC expects you to record
GOV.UK says sole traders and business partners must keep records of business income and expenses for their Self Assessment tax return, and records of personal income as well. If you do not prepare formal accounts, you record income and expenses for each tax year, which runs from 6 April to 5 April.
From the 2024 to 2025 tax year, the cash basis is the default. You record income when you receive it and expenses when you pay them, which is simpler than recording by invoice date. For each entry, keep:
- The date.
- The amount.
- Who it was from or to, and what it was for.
- The invoice, receipt or bank statement line that proves it.
Below the Making Tax Digital threshold, none of that needs software: a spreadsheet with those four columns, backed by a folder for the paper, is a complete system. Making Tax Digital for Income Tax applies from 6 April 2026 to sole traders whose qualifying income is over £50,000, which means digital records in compatible software and quarterly updates to HMRC. GOV.UK gives the threshold as £30,000 from April 2027 and £20,000 from April 2028, so check which applies to you.
How long to keep it
For Self Assessment, GOV.UK says to keep records for at least five years after the 31 January submission deadline for the tax year. Its example: if you filed your 2022 to 2023 return online by 31 January 2024, keep the records until at least the end of January 2029. If you file more than four years after the deadline, the period is 15 months after you send the return. If you cannot replace lost records, give your best figures and tell HMRC whether they are estimated or provisional.
Five years of paper builds up. Filing it by tax year, and labelling each box with the date it can be thrown away, saves guessing later.
Paper and the tools that help
Most receipts arrive as email or PDF now, but fuel, tools, materials and parking still arrive on paper, and thermal receipts fade. Photograph them on the day. If volume is high, a Ad portable document scanner copes with a pile in one sitting.
For the paper itself, a Ad twelve-pocket expanding file gives you one pocket per month. A Ad receipt organiser wallet stays in the car or bag until the end of the week. If you prefer a written record, an Ad account book with columns is laid out for income and expenses.
At the end of the tax year, everything goes into an Ad archive box with a lid, labelled with the tax year and the earliest date it can be thrown away.
The £1,000 trading allowance
If your gross trading income for the year is £1,000 or less, you generally do not need to tell HMRC, but you must still keep records. If it is more than £1,000, you can deduct up to £1,000 instead of your actual expenses. You cannot do both: GOV.UK says you cannot deduct other expenses or allowances if you claim the allowance. Where your real expenses are higher than the allowance, GOV.UK says it may be beneficial to claim the expenses instead. Gross trading income over £1,000 also means registering for Self Assessment by 5 October after the end of the tax year.
How much of each payment to put aside
The share depends on your profit, not your turnover. For 2026/27, England, Wales and Northern Ireland, the Personal Allowance is £12,570. Income above that, up to £50,270, is taxed at 20%. Class 4 National Insurance is 6% on profits between £12,570 and £50,270, and 2% above.
An example, with invented figures: a sole trader with £30,000 of profit for 2026/27.
- Profit above the allowance: £30,000 minus £12,570 = £17,430.
- Income tax at 20%: £3,486.
- Class 4 at 6%: £1,045.80.
- Total: £4,531.80, which is about 15% of the profit.
So setting aside about 15% of profit from each payment covers the bill in this example. A trader on higher profit needs a bigger share. In Scotland the income tax bands are 19%, 20%, 21%, 42%, 45% and 48%, so the share differs there too. The calculator shows the figure for your exact profit.
Put the money aside when the payment lands, not when the bill is due, and write the amount in the record the same day.
The first bill is bigger than it looks
The first Self Assessment bill is usually the one that surprises people, because it can include a payment towards the next year. GOV.UK describes payments on account: two instalments, each normally half of last year's bill, due on 31 January and 31 July. You must make them unless last year's bill was under £1,000, or you paid more than 80% of it outside Self Assessment, for example through your tax code.
If you had not made payments on account before, the 31 January payment is the full bill for the previous year plus the first payment on account. In the example above, that is £4,531.80 plus half of it, £2,265.90, which comes to £6,797.70 in one go. Sizing the set-aside for that, rather than for the bill alone, is what keeps January from being a problem.
Dates for the current return
For the 2025 to 2026 tax year, GOV.UK lists these dates: file online by 31 January 2027 and pay any tax due by the same date. A paper return has to reach HMRC by 31 October 2026. The deadline to register, if you had not filed before, was 5 October 2026. If that has passed, GOV.UK says HMRC will send a letter or email with a deadline three months from its date, and the payment date of 31 January 2027 still applies. Missing the dates can lead to penalties.