If you are a sole trader, you need accurate records of your income and costs to work out your profit and your tax bill. The 2026/27 tax year runs from 6 April 2026 to 5 April 2027 and brings changes for some people through Making Tax Digital. This guide explains what to record, what you can and cannot deduct, and how quarterly updates work.
This guide is for sole traders in England, Wales and Northern Ireland. Scotland has different Income Tax bands.
What records to keep
Keep a record of every payment you receive and every business cost you pay. Most small businesses use the cash basis: you record income when you receive it and costs when you pay them. For each entry, note:
- The date
- Who paid you or who you paid
- A short description
- The amount
- A receipt, invoice or bank record to back it up
A spreadsheet is enough for many sole traders, provided it is kept up to date and the supporting records are stored safely.
Which expenses you can claim
You can deduct costs that are wholly and exclusively for your business, such as stock, rent for business premises, insurance, phone and internet costs for business use, professional fees and advertising. Not every cost qualifies. HMRC's guidance says costs that you cannot deduct include:
- Entertaining customers or suppliers
- Depreciation
- Fines and penalties
- Private or personal costs
- Your own wages and drawings
- Repaying the loan itself (interest on a business loan is allowable, but the repayment is not)
- Travel between home and your business premises
If a cost is partly private, claim only the business share. If you are unsure about a cost, check HMRC's guidance or ask an adviser before claiming it.
The trading allowance
If your gross trading income is £1,000 or less in the year, it may not need to be reported. If it is more, you can choose to deduct a £1,000 trading allowance instead of your actual expenses. You cannot claim both on the same income, and you cannot claim capital allowances if you use the trading allowance. For most people with real business costs, deducting the actual expenses is more useful.
Claiming mileage the simple way
Instead of working out the actual costs of running a vehicle, you can claim a flat rate for each business mile under simplified expenses. For 2026/27 the rates are:
| Vehicle | Rate per business mile |
|---|---|
| Cars and goods vehicles, first 10,000 miles | 55p |
| Cars and goods vehicles, after 10,000 miles | 25p |
| Motorcycles | 24p |
The car and van rate for the first 10,000 miles was 45p before 6 April 2026. As an example, 11,000 business miles in a year would be 10,000 × 55p plus 1,000 × 25p, which is £5,750. Once you use flat rates for a vehicle, you must keep using them for as long as you use that vehicle for your business. Do not also claim the fuel, insurance or repair costs for the same vehicle. If you use more than one vehicle, record each one separately. Travel between home and your business premises is not a business mile.
How much tax will I owe?
For 2026/27 in England, Wales and Northern Ireland, the Personal Allowance is £12,570, and Class 4 National Insurance is 6% on profits between £12,570 and £50,270 and 2% above that. Income Tax rates of 20%, 40% and 45% apply to the bands above your allowance. Setting money aside every month is easier than facing one large bill. A simple approach is to check your profit regularly and put aside a share of every payment.
Making Tax Digital for Income Tax
From April 2026, Making Tax Digital for Income Tax applies to sole traders and landlords with qualifying income over £50,000. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028.
- Qualifying income is your gross income from self-employment and property combined, before expenses. It is based on your tax return for the earlier year (2024/25 for the April 2026 start). Employment income taxed under PAYE does not count.
- If it applies to you, you need HMRC-compatible software to keep digital records and send quarterly updates.
- Quarterly updates are cumulative, covering your figures from 6 April to the end of each quarter. The 2026/27 deadlines for the standard quarters are in the timetable below.
- The tax return for 2026/27 is due by 31 January 2028.
2026/27 quarterly update timetable
As of October 2026, the 7 August 2026 deadline has passed and the next deadline is 7 November 2026.
| Quarterly update due by | Where things stand (October 2026) |
|---|---|
| 7 August 2026 | Deadline passed |
| 7 November 2026 | Next deadline |
| 7 February 2027 | Still to come |
| 7 May 2027 | Still to come |
For the 2026/27 tax year, HMRC will not apply penalty points for late quarterly updates. You must still send your quarterly updates, because they are needed before you can submit your tax return.
Official GOV.UK guidance
Quarterly updates do not replace your tax return, and your software asks for totals by income and expense category. A spreadsheet can help you keep organised, but it does not send anything to HMRC.
Registering for Self Assessment
If you started self-employment in 2026/27 and are not already registered for Self Assessment, you generally need to register by 5 October following the end of the tax year, so by 5 October 2027, if your gross self-employment income is over £1,000. Check GOV.UK for your own circumstances.
Official sources
- GOV.UK: Simplified expenses if you're self-employed, vehicles (opens in a new tab)
- GOV.UK: Expenses if you're self-employed (opens in a new tab)
- GOV.UK: Tax-free allowances on property and trading income (opens in a new tab)
- GOV.UK: Use Making Tax Digital for Income Tax (opens in a new tab)
- GOV.UK: Income Tax rates and Personal Allowances (opens in a new tab)
- GOV.UK: Self-employed National Insurance rates (opens in a new tab)
- GOV.UK: Register for Self Assessment (opens in a new tab)