A Guide To Setting Up As A Sole Trader

Ready to start your own business but not sure how to go about it? Its not as complicated as you might think. Here’s our complete guide on how to set up as a sole trader – from registration advice to tax and legal responsibilities.

What is a sole trader?

In short, if you work for yourself rather than for an employer, and/or you’re the only owner of the business you work for, then you’re a sole trader. It’s possible to be a sole trader of one business while still being employed by another – for example if you worked for a company part-time but ran your own freelance business on the side.  

As a sole trader, you get to keep your business’ profits (after you’ve paid tax, of course) but you’re personally liable for any financial losses or responsibilities, as there is no legal distinction between you and your business. Find out more about the differences between registering as a sole trader versus running your business as a limited company.  

Directors aren’t self-employed, as they’re employees of their company and are paid as such.

Do I need to register as a sole trader business?

According to the government, you need to set yourself up as a sole trader if:

  • You earned more than £1,000 from self-employment in the last financial year (6 April 2017 – 5 April 2018)
  • You need proof that you’re self-employed – to claim tax-free childcare, for example
  • You want to make voluntary class 2 national insurance contributions, to help you qualify for benefits

Running your business as a sole trader is relatively straightforward as you don’t need to pay any fees to register.

How do I register as a sole trader?

Setting yourself up as a sole trader is simple. Simply contact HMRC, who’ll ask you to register for Self Assessment and class 2 national insurance. Just make sure you register by 5th October in your business’ second tax year, else you could be fined.

Once you’ve registered and sent your first tax return, you’ll get a letter with a ten-digit unique taxpayer reference (UTR) that you’ll use to log in and complete future tax returns online. It’s as easy as that.

What are my sole trader tax and legal responsibilities?

As a sole trader, you need to:

If your annual turnover is more than £85,000, you’ll also need to register for VAT. It might even be a good idea to register for it if you fall below this threshold, so that you can sell to other VAT-registered businesses and claim back the VAT, for example.

You don’t need to get your accounts audited if you’re a sole trader, unless you want to. Doing so can be useful when it comes to paying tax or when you need proof of your business’ income – if you’re trying to get a mortgage or make personal pension contributions, for instance.

What about naming my business and employing staff?

Your sole trader business name can either be your own, or another specific name just for your business. Either way, you need to include your name and business name (if different) on any official paperwork, like invoices or letters.

If you do decide to give your business its own name, it can’t include any reference to the word ‘limited’ – including ‘ltd’, ‘public limited company’ or ‘limited liability partnership’. It also can’t be the same as an existing trademark. If in doubt, check out the government’s advice on business names.

Want to grow your brand? You can still be a sole trader and have employees work for you, as long as you’re still the only business owner.

All set up? Now make sure you’ve got the right insurance in place to protect you and your business. Find out more about our Public Liability Insurance for the self-employed here.

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