Registering as a sole trader

Registering as a sole trader

What does it mean to be a sole trader, and how do you register as one? We explain how you go about this, and the things you need to know.

What is a sole trader?

A sole trader means that you are self-employed, however, this doesn’t mean you are completely alone, it also includes any employees you may have. Sole traders are able to employ others and create a limited company if they so choose at a later date. You will need to file a tax return on a yearly basis.

How do I register as a sole trader?

Registering as a sole trader is straightforward and fairly inexpensive to set up. If you are a sole trader, you need to register as soon as you possibly can with HM Revenue & Customs (HMRC). This applies even if you are a sole trader on just a casual or part-time basis.
The reason why this is so important is that you could be fined. This may end up being up to 100% of the tax due, as well as the tax itself.
The easiest way to registering is on the HMRC website, or by calling the Newly Self-Employed helpline. There is also the option of printing out an HMRC application form to become a sole trader which you can then send to them. In order to register as a sole trader you will need the following details on hand:

  • Your full name
  • Date of birth
  • Your current address
  • Telephone number
  • Your business start date
  • Whether you are a sole trader or have a business partner
  • Your national insurance number
  • The type of business you are running
  • The name of the business

Sole trader responsibilities

Once you have registered as a sole trader, you will need to make sure you adhere to these rules:

  • Filling in a Self Assessment tax return every year to HMRC
  • Keeping all the record’s of expenses  (this includes utility bills, invoices, receipts, etc.) and business sales
  • If you are moving to the UK in order to set up your business as a sole trader, you will need to apply for a National Insurance number beforehand
  • You will need to pay Income tax on any profits you make
  • You will need to pay Class 2 and 4 National Insurance – the HMRC has a calculator that can help you with this. Class 4 insurance is applicable if the yearly profits exceed £8,164
  • You will also need to register for VAT if the turnover of your business is more than £85,000 each year. If you are registered, you can reclaim the VAT you pay to any suppliers
  • If you do employ others as a sole trader, you will also need to collect National Insurance contributions and income tax from them too
  • For employees you may have, you will also need to have a Pay As You Earn payroll scheme (PAYE) in place, as well as a pension scheme for eligible workers.

It is important to note that there is an element of risk financially when it comes to being a sole trader. If the business fails, you will have to pay the debts that are incurred. This is because they are seen as subject to unlimited liability. It can also be difficult to raise funding in the first place.

Can I register under my name?

As a sole trader, it is possible to trade under your own name if you would like, but it doesn’t necessarily have to be registered. It just needs to be on official paperwork, as well as a business name if it exists. When it comes to business names the GOV UK website states certain names that can’t be used. Such as:

  • The sole trader name can’t be offensive
  • The business name can’t be the same as an existing trademark
  • It can’t include ‘Ltd’ ‘limited’ ‘LLP’ ‘plc’ or ‘public limited company’
  • It can’t contain a ‘sensitive’ word

If you aren’t sure if the name you want to register with is appropriate or if you might need permission prior to using it, you can check online with the HMRC which details which words need permission before using them, and where you access this permission.

Advantages of being a sole trader

  • Profit retention – you can keep the profits that you make
  • Control – as you are the main decision maker, you have full control
  • Privacy – registering as a sole trader gives you greater privacy. Your data is kept private as a sole trader, which is different if you register as a limited company