You left the employer in May, did your first job in June, invoiced it in July, and were paid in September. It is a decent start. Work is coming in, the phone rings, and for the first time the money that lands in the account is yours.
That last part is where the trouble begins, because a good deal of it is not.
Register when you start, not when the bill turns up
You must tell HMRC that you are self-employed. The deadline is 5 October following the end of the tax year in which you started, so somebody who began trading in June 2025 is inside the 2025/26 tax year and has until 5 October 2026.
Do it in the first month instead. It takes very little time, it gets you a Unique Taxpayer Reference, and it removes the single commonest cause of a first-year penalty, which is nothing more complicated than having forgotten.
While you are at it, open a separate bank account. It does not have to be a business account if you are a sole trader, though many banks require one, and the reason is not legal tidiness. It is that you cannot see how your business is doing if its money is mixed with your rent and your shopping, and you will spend your first January trying to reconstruct a year from a personal statement.
Keep the records as you go. HMRC requires you to keep them for at least five years after the 31 January submission deadline for the relevant tax year, which sounds like a filing burden and is actually a favour: the person who most wants last March's invoice is you, in eighteen months, when a customer disputes it.
National Insurance is two classes and one of them has changed
Self-employed National Insurance has historically come in two parts, and the position has moved recently enough that a lot of the advice online is out of date.
Class 4 is the main one. It is a percentage of your profits between a lower and an upper limit, with a smaller percentage above the upper limit. The main rate has been cut twice in recent years, to 8% and then to 6% from April 2024, on profits between £12,570 and £50,270, with 2% above that. Treat those numbers as current rather than permanent, because they move at fiscal events, and check the rate for the year you are actually filing.
Class 2 used to be a flat weekly amount and it is what built your entitlement to the state pension and certain benefits. From April 2024 it is no longer payable by the self-employed with profits above the small profits threshold, and those people are treated as having paid it. If your profits are below that threshold you can still pay voluntarily to protect your contribution record, and for somebody with a patchy work history that is often worth doing.
The practical point is that your bill is not just income tax. Budget for both.
Set the money aside on the day it arrives, not at the year end
The single habit that separates a comfortable first January from a frightening one is moving a percentage of every payment into a second account the day it lands.
Not at the month end. Not when you get round to it. The day it lands, before you have made any decisions about it.
How much depends on your profit level and your circumstances, and a rough working figure for a basic rate sole trader is somewhere around a quarter to a third of profit, not turnover. If you are approaching the VAT registration threshold, that money is not yours either and it needs its own account. An accountant will give you a number for your position in about twenty minutes and it is worth the fee for that alone.
The reason for the separate account is psychological rather than financial. Money in your current account is available. A quiet February plus an available tax reserve equals a spent tax reserve, and everyone who has done it thought they were the exception.
The work is finished long before the money arrives
New sole traders consistently underestimate the gap between doing the job and being paid for it, and that gap is the entire cash flow problem of a first year.
Thirty day terms mean thirty days from the invoice, and the invoice often goes out a fortnight after the work. A customer who pays on the fifteenth of the month after receipt is not being difficult. A larger customer who puts you on their standard sixty day terms is not negotiating. So a job completed in June can quite reasonably be paid in September, while the materials for it were bought in May.
Three things help. Invoice the day the work is done, because the clock does not start until you do. Ask for a deposit on anything with materials in it, which is normal in almost every trade and unremarkable to customers. And chase politely on day one of lateness rather than day thirty, because the businesses that get paid first are the ones that ask first.
January is the month that catches people
Your first Self Assessment return covers your first tax year and the tax is due on the 31 January that follows it. So someone who started in June 2025 files and pays by 31 January 2027, which is around nineteen months after that first job.
The catch is that if your bill is over £1,000, you will usually also pay a first payment on account for the following year on the same day, at half the bill, with a second half due on 31 July. So the January payment can be one and a half times the tax you were expecting, in one go, in the month when a lot of trades take the least money they take all year.
It is not an extra tax. It is the system moving you onto paying in advance, and it happens once. But it happens in your first January, after a December when you were not working much, and it is the reason for the reserve account.
One further change worth knowing: since 2024/25 all sole traders are taxed on a tax year basis, with 2023/24 as the transition year, so the old overlap relief complications that used to confuse first-year accounts no longer apply to new businesses.
Where this shows up in the game
Business Baron starts a career with a founder who has a life outside the business, and the first Self Assessment arrives on the real date with the real payment on account attached. Plenty of players lose their first company in a January, having traded profitably all year, because the money was spent in November. That is not a difficulty setting. It is the most common way a real first year ends.