People decide to register as a sole trader for many different reasons, whether to become their own boss and break the 9-5 lifestyle or to follow a passion. Is it any wonder that over 4 million people in the UK are sole traders?
A sole trader is anyone who runs their own business, selling goods or services for a profit; being a sole trader doesn’t stop you from hiring employees to work for you. However, it isn’t the only business model for self-employed people. You may want to register as:
- A limited company – finances of the business are legally separate from its owner(s)
- A business partnership – responsibility of the business is shared between you and a partner
Find out more on the government’s website.
When do I need to register as a sole trader?
When you have earned more than £1000 in a tax year, you need to register as a sole trader with HM Revenue and Customs (HMRC). It’s important to get this done when setting up your business, to ensure that you’re paying the correct amount of income tax. Failing to register as a sole trader in time may incur large fees for you. For the 2021/2022 tax year, the deadline to register is the 5th October 2022.
Setting up your business as a sole trader:
Naming your business
The first step is to create a name for your business. It’s important to be sure when deciding your business name, as changing it once you are up and running might make it confusing for customers.
Ideally, your business name will make it clear to potential customers what service you provide, as well as be easy to remember. Whilst it’s important to be creative when deciding your business name, Companies House reject names with vulgarity or slurs
Be sure to check the gov website for lists of words that cannot be used as a business name. It’s important that the name you’re using has not been trademarked by anyone. The gov website also has details on how to search if your name has been trademarked.
The next step is to register as a sole trader online through the HMRC gov website. You simply have to register for self-assessment through the online form, and then wait to receive your Unique Taxpayer Reference (UTR) number.
Once you have received it, you can submit your first self-assessment tax return, and that’s it- you’re done!
Do I need to consider VAT?
Now that you’re the boss, you may need to register for Value Added Tax (VAT). You only have to register for VAT if your taxable turnover is over £85,000.