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Everything about being a Sole Trader

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What is a sole trader?
A self employed individual who solely owns the business. There is NO legal separation between you or the business. 

You can keep all your business’s profits after you’ve paid tax on them. 

You’re personally responsible for any losses your business makes.


 

The criteria to be considered as a sole trader is as follows…
HMRC will probably consider you to be self-employed if you:

  • can decide how, where and when you do your work
  • provide the main items of equipment to do your work
  • sell goods or services to make a profit
  • are paid for a service you provide

Some individuals can be employed and self-employed at the same time, for example if you work for an employer in the day and run your own business in the evenings and/or weekends.

You can use this tool to find out if HMRC will consider you as employed or self-employed for tax and National Insurance contributions purposes, if you have (or expect to have) a work contract.

 

How to register as a sole trader…
Registering as a sole trader is done via HMRC online at gov.uk and it’s pretty straightforward. 

You’ll need to provide a few details to apply such as;

  1. the date you started your business
  2. basic personal details, including your National Insurance number and home address
  3. information about the job you do

    If you haven’t filed a tax return before, you’ll need to register for Self Assessment and Class 2 National Insurance through your business tax account. You’ll need a Government Gateway user ID and password to sign in. If you do not have a user ID for a business tax account, you’ll be able to create one.

    If you have filed a tax return before, you’ll need to re-register online (form CWF1) for Self Assessment and Class 2 National Insurance.  You’ll need your 10-digit Unique Taxpayer Reference (UTR) from when you registered before. You can find your UTR if you do not know it.

    If you’ve filed a tax return before but you did not use the online service, you’ll need to sign into your business tax account and add a Self Assessment. You’ll need your Government Gateway user ID and password to sign in.

    Alternatively, you can register by post by filling in a form on-screen then printing it off and posting it to HMRC.

    Once you're registered, HMRC will send you a letter with your 10-digit Unique Taxpayer Reference (UTR) within 10 days (21 if you’re abroad). You’ll need your UTR to file a return.

    You’ll receive a reminder letter or email telling you to complete a Self Assessment tax return before it’s due.
     


    When to register as a sole trader?
    You need to set up as a sole trader if any of the following apply:

    • you earned more than £1,000 from self-employment in the last tax year (The UK tax year runs from 6th April to 5th April in the following year)
    • you need to prove you’re self-employed, for example to claim Tax-Free Childcare
    • you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits..

     

    Responsibilities as a sole trader
    You’ll need to:
    • bookkeep (keep business records and records of expenses)
    • send a self assessment tax return every year
    • pay income tax on your profits and class 2 and class 4 national insurance 

    Get the Ultimate Bookkeeping Spreadsheet here! - Start budgeting for your tax bill and organise your finances.

     

    VAT
    You must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.
     


    Naming your business
    The fun stuff! You can trade under your own name, or you can choose another name for your business. You do not need to register your name.
    You must include your name and business name (if you have one) on official paperwork, for example invoices and letters.

    Sole trader names must not:

    • include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
    • be offensive
    • be the same as an existing trade mark
    • Your name also cannot contain a ‘sensitive’ word or expression, or suggest a connection with government or local authorities, unless you get permission.

     

    Key Dates

    • 6th April to 5th April - UK Tax Year
    • 5th October - Deadline to register for the previous tax year
    • 31st January - Deadline to pay your tax bill

    For example, for the tax year 6th April 2021 to 5th April 2022, the deadline to register your business is 5th October 2022 and the deadline to pay your tax bill is 31st January 2023.


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    All information derived from gov.uk.

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    Everything about being a Sole Trader
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    Disclaimer: The information provided on this website is for guidance and information purposes only. It should not be a substitute for professional accounting, tax and legal advice.  For specific advice relevant to your individual situation, always contact a professional.