How to register as a sole trader

Being your own boss is on the rise in the UK, with more people looking into their options for self-employment.

A popular choice is to register as a sole trader – but where to start?

Relax – and read our simple guide.

What is a sole trader?

A sole trader is a simple business structure under which a person can earn money from selling goods or providing a service.

Benefits of being a sole trader include setting your own hours, keeping all post-tax profits and minimal admin requirements.

How do I register as a sole trader?

1. Choose a name

Your business name must be unique and not misleading. You can trademark your business name to prevent it from being copied.

If you don’t want to choose a business name, you can use your own name.

2. Check any license requirements

Some sole trader types – including entertainers, taxi services, some construction workers, childminders and some types of aesthetic practitioners – require a license to practice.

To check whether this applies to you, go to the online GOV.UK License Finder and enter your business type.

3. Register with HMRC

The easiest way to register as a sole trader is on the HMRC website. You must first prove your identity using a Government Gateway ID or GOV.UK Verify, then register your new status as a sole trader.

You’ll be sent a Unique Taxpayer Reference (UTR) which will allow you to create a business tax account and register for Self-Assessment tax.

You must enter the date you began trading, and choose an accounting period, which must span 12 months (unless it’s your very first accounting period which may be slightly longer).

4. Start keeping records

Going forward, you must keep a log of all financial transactions relating to your business – including invoices, expenses and receipts – in date order.

How much does it cost to register as a sole trader?

Registering as a sole trader doesn’t cost anything. If you want to trademark your business name with HMRC, there’s a £170 fee.

How much income tax will I pay as a sole trader?

As a sole trader, you’ll pay income tax on profits made above the tax-free Personal Allowance – which is currently £12,570.

You can deduct business expenses from your pre-tax profit, to include things like premises running costs, travel, stock, training and marketing.

Then, you’ll pay the basic tax rate of 20% on profits up to £50,270. The higher rate of 40% is due on profits from £50,271 up to £150,000 and beyond that, you’ll pay the advanced rate of 45% income tax.

You’ll also have to pay Class 2 and 4 National Insurance (NI) contributions, which are calculated when you complete your annual Self-Assessment tax return.

If you make over £85,000 per year from your sole trader business, you’ll need to register for VAT with HMRC.

How do I pay tax as a sole trader?

Sole traders aren’t liable to be taxed at source via PAYE, so must complete an annual Self-Assessment tax return on the HMRC website.

On the online form, you must declare your business income, expenses and any other income you’ve received over the tax year. You’ll receive a Tax Calculation Summary which will indicate how much tax and NI you owe.

You must file your Self-Assessment tax return and pay the tax due by no later than 31 January every year or face a penalty fine. Bear in mind HMRC will ask you for payments on account when you submit your tax return – this is usually half the previous year’s tax bill.

To Sum Up

Registering as a sole trader is relatively simple, but there’s still plenty to be aware of as you launch your new enterprise. An accountant can help you set up your accounting system so you’re starting from good foundations. If you are looking for more information about our sole trader accounting services, please contact us today and a member of our team will be able to help.