New Sole Trader? How Your First Accounting Period Works

What Is an Accounting Period for a Sole Trader?

Put simply, an accounting period is the window of time your business accounts cover. Most sole traders settle on 12 months of trading, closing on a date they pick themselves, and that closing date becomes known as the “year end”.

Those accounts are then used to calculate your taxable profit, which gets reported through your Self Assessment tax return.

This is often where new sole traders get their wires crossed. The UK tax year runs from 6 April to 5 April, yet since basis period reform kicked in from 2024/25 onwards, sole traders are now taxed on the profits that arise within the tax year rather than within their own chosen accounting year. So, if your books happen to run from 1 July to 30 June, those profits will still need to be split across the correct tax year when the return is submitted.

Accounting Period Versus Tax Year: Why It Matters

Now that HMRC assesses profits on a tax year basis, plenty of new sole traders simply go with a year end of 5 April, or 31 March, which HMRC accepts as equivalent. Doing so keeps everything neat, spares you the job of apportioning profits across two tax years, and makes your bookkeeping far less of a headache.

Of course, a different year end is still an option if it genuinely fits how your trade works, though the extra effort rarely earns its keep for smaller businesses. Uncertain which route to take? A quick word with a sole trader accountant will spare you plenty of second-guessing further down the line.

Read More: Difference Between Tax Year and Financial Year UK

When Does Your First Accounting Period Start and End?

Your first accounting period begins on the day you actually start trading, which is not always the same day you got your HMRC registration through. Trading, in this sense, covers issuing invoices, receiving payments, or actively putting your goods and services out there for money.

Two typical examples show how this plays out:

• Say you begin trading on 1 October 2026. You could run your first set of accounts from 1 October 2026 through to 5 April 2027, giving yourself a shorter opening period that lines up neatly with the tax year.
• Alternatively, you might start on 10 April 2026. From there, you could run a full 12 months to 5 April 2027, or choose a different year end that reflects when things naturally quieten down for you.

How Long Can the First Accounting Period Be?

For the majority of new sole traders, the first accounting period stretches up to 12 months. Shorter is fine too, especially if aligning with the tax year straight away appeals to you. Switching your year end later on is doable, but it does throw up complications, so a bit of thought at the outset really does pay off.

A short conversation with an accountant will usually help you land on the year end that suits how your cash actually flows in.

Your First Year Deadlines and HMRC Obligations

Once trading gets underway, a small handful of jobs really do matter more than everything else:

• Register for Self Assessment with HMRC by 5 October following the close of your first tax year of trading.
• Keep records of every bit of income and allowable expense from your very first day.
• File your opening Self Assessment tax return online by 31 January after the tax year finishes.
• Pay any income tax and Class 4 National Insurance owed by that same 31 January deadline.
• Get ready for “payments on account” if your bill tips over £1,000, since these are advance instalments toward next year’s tax.

Slip past any of these dates and automatic penalties and interest will follow, even when it happens to be your first return.

First Accounting Period Example Timeline

Here is how it tends to look for someone getting started mid-year:

• Trading begins: 1 September 2026
• First accounting period: 1 September 2026 to 5 April 2027
• Tax year covered: 2026/27
• Self Assessment registration deadline: 5 October 2027
• Return and tax payment deadline: 31 January 2028

From there, the same rhythm carries on year after year. If those dates already feel like a lot to juggle, a dedicated sole trader accountant will keep track of them for you and nudge you well before anything is due.

What Records and Accounts Do You Need to Keep?

Business records have to be kept for at least five years after the 31 January submission deadline. Beyond simply meeting the rules, well-kept records mean nothing slips through the net when you claim expenses.

The records worth holding onto include:

• Sales invoices and income records, cash and card takings included
• Purchase invoices and receipts covering business costs
• Bank and credit card statements
• Mileage logs plus any workings for home-office use

Making Tax Digital for Income Tax is being brought in gradually, starting from April 2026 for sole traders and landlords whose qualifying income sits above £50,000. Getting comfortable with digital record-keeping now will spare you a real scramble later.

Simple Ways to Stay Organised in Year One

A few small habits make an enormous difference:

• Set up a separate business bank account from your very first day
• Block out a regular weekly slot to bring your books up to date
• Lean on straightforward accounting software rather than a drawer full of receipts

Plenty of sole trader accountants build software into their monthly fee, meaning you do not have to turn into a bookkeeper overnight.

How Your First Profit Is Taxed

HMRC taxes your profit, not your turnover. Profit, in this case, is your income once allowable business expenses have been taken off.

That figure then gets added to any other income you have earned in the same tax year, whether that is a part-time salary or rent from a property, and the total is measured against your Personal Allowance and the income tax bands. Class 4 National Insurance will also apply on profits sitting above the annual threshold. Class 2 NIC, meanwhile, no longer needs to be paid by most self-employed people, though voluntary payments remain an option if you want to protect your State Pension record.

Avoiding Nasty Surprises in Your First Year

Two habits shield first-year sole traders from a January meltdown:

• Set aside a portion of every payment you take in (25 to 30 per cent is a common rule of thumb) into a separate tax savings account
• Ask an accountant for a first-year tax estimate early on, so you have a realistic figure to save toward

An accountant will also flag payments on account long before they land, which helps you keep your cash flow steady.

Should a New Sole Trader Use an Accountant?

A lot of new sole traders talk themselves out of getting help, convinced they are “too small” to justify an accountant. In reality, the earlier that support arrives, the fewer expensive mistakes tend to creep in. A specialist can:

• Recommend the right accounting period and year end
• Get compliant bookkeeping and MTD-ready software in place
• Spot allowable expenses so you never pay more tax than you owe
• Take HMRC registration, tax returns and correspondence off your plate

Just started trading, or nearly there? Now is exactly the right moment to bring in expert support. Our specialist sole trader accountants at Tax Care will set up your first accounting period, help you choose the best year end for your situation, and look after your ongoing accounts and tax returns from there. Book a free, no-obligation consultation today and let us talk through your plans.

Quick Checklist for Your First Accounting Period

• Confirm the official date your trading began
• Decide on your first accounting period and year end
• Register as self-employed with HMRC for Self Assessment
• Open a business bank account that sits separately from your personal one
• Pick a simple bookkeeping system or cloud software you will actually use
• Keep an eye on your Self Assessment filing and payment deadlines
• Put money aside every month toward your first tax bill
• Speak to a specialist sole trader accountant for setup and ongoing support