The stress-free guide to registering as a sole trader
Setting out in business on your own might feel daunting, but take comfort from the fact that you’re in good company - there are now almost five million self-employed workers in the UK, accounting for 15% of the total workforce!
There are many benefits of being your own boss, including greater control over your work-life balance, flexible hours and choice on the projects you work on. However, there are a few rules you have to follow before you start trading. Here’s a quick guide to keep you on track.
What does it mean to be a ‘sole trader’?
If you earn money from self-employment but are not a partner in a partnership or the director of a limited company then you are a sole trader.
As a sole trader there is no distinction between you and your business. This means that you get to keep all your business’s profits after tax, but it also means that you’re personally responsible for any losses the business makes.
The tax rules are different for different company types so check out our guide to find out which company type is best for you.
Naming your business
The first thing to consider when you choose to go down the sole trader route is the name that you want to trade under. This can be your own name or something creative but bear in mind that trading names for sole traders must not:
- include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
- contain a ‘sensitive’ word or expression or suggest a connection with government or local authorities, unless permitted to do so
- be offensive
- be the same as an existing trademark
While you do have to follow the guidelines above, you won’t have to officially register your business name with Companies House, as you would for another type of business.
For more information on naming your sole trader business, check out our full guide on how to register a business name in the UK.
Registering as a sole trader
There’s a certain amount that you can earn from self-employment before HMRC expects you to pay tax - this is called the trading allowance. If you think you’ll earn above the trading allowance from your sole trader business in a single tax year, you need to register as self-employed in order to file a tax return and pay tax on your earnings.
To register you simply need to tell HMRC that it can expect a Self Assessment tax return from you. You can either do this by registering online or by printing out and posting the relevant form from HMRC’s website.
Be aware that if you need to register for Self Assessment, you must do so by 5th October in your business’s second year or you could face a fine.
What happens next?
Once you’ve told HMRC that you plan to earn income as a sole trader, they will send you a Unique Taxpayer Reference (UTR) and set up your online account, where you’ll be able to access the Self Assessment service. Shortly after that, HMRC will send you a letter with an activation code that will enable you to get your online account up and running. This is where you’ll get information about your tax status, such as how much tax you’ve paid in previous years, your tax code and when your next tax return is due.
Don’t forget to check your responsibilities
Once you’ve registered, you’ll be free to trade! But be aware that you will have a few new important responsibilities - check out our guide to sole trader legal requirements and responsibilities to find out more.
Consider accounting software to take the stress away
Managing the finances of your business can be complicated, but FreeAgent can take a lot of that complexity away with simple features that will also keep you on the right side of the taxman. Find out more about how FreeAgent can help save you from stress.