As a sole trader your profits are taxed as any other income by the HM Revenue & Customs. And as you are self-employed your tax will be self-assessed.

The amount you owe is calculated after business expenses and personal allowances have been deducted. Your income will fall under tax Schedule D and as you will be paying income tax twice a year so it makes sense to put money aside.

As a self-employed person many of your business expenses can be deducted from your taxable income, such as overheads on your premises, travel, delivery costs and trade association subscriptions. But you will have to pay capital gains tax if you sell or give away any assets.

You will also be paying National Insurance Contributions (NICs) to the Department of Social Security. Class 2 NICs are charged at a small weekly rate and the level of Class 4 contributions you pay depends on your profits.

Some individuals, if their income is above a certain level, (approximatley £77,000 per annum, although this is subject to Budget announcements) must apply for value added tax (VAT) registration. This means you will be collecting VAT from your customers and paying it to HMRC less the VAT you have paid out in the course of business.