When you are selling goods or services in the UK alone, you might think of registering as a sole trader. The sole trader model offers a number of advantages. You don’t have to register with a company for the services you offer. Even after filling out your annual self-assessment tax return, you get completely what you earned. Thus, being a sole trader is quite a practical choice for UK Individuals running a business alone.
In this blog, we bring a comprehensive guide on why you should set up as a sole trader and a step-by-step guide to register with HMRC as a sole trader.
A sole trader is an individual who owns a business alone or is self-employed. This means he is solely responsible for all the finances, debts, profits, and other legal obligations. A sole trader doesn’t need anyone to run his business but sometimes an accountant may be helpful for bookkeeping and filing self-assessment.
However, setting up as a sole trader in the UK doesn’t mean you are running your business by yourself. You can hire employees in your business, but you remain the sole owner. It’s a great choice for individuals to start their business and change the business structure afterwards when they scale.
Get Your Business Up and Running, Fast!
Starting your business as a sole trader is incredibly simple, unlike setting up a limited company, in which you have to register with Companies House and meet more complicated legal requirements. You simply need to register yourself with HMRC for self-assessment.
This ease of use enables you to get trading almost instantly. It is perfect for those freelancers, consultants, or small business owners who want to start trading today. With low administrative costs, you can focus on growing your business and worry less about business paperwork.
Be the Only Decision-Maker
While setting up a business as a sole trader, you are the one who makes all of your business decisions. As a sole trader, you don’t need approval from partners or shareholders, allowing you to make decisions quickly and act decisively. This independence allows you to transform faster and make the changes that will help your business go in the direction you want. The power to think for yourself can be a great asset in the fast-moving business world.
Keep all Your Profits
One of the biggest benefits of setting up as a sole trader is the fact that you get to keep all your business profits after tax. Unlike in limited companies, the profit is not shared, which means you keep all your hard-earned money.
This direct relationship between effort and payoff can be a huge motivator, particularly in the early years of building your business.
Manage Your Finances Easily
It’s quite simple to handle tax if you are a sole trader. You need to submit an annual self-assessment tax return, and you are liable to pay income tax on your profits annually.
No need to file any corporation tax obligations or complicated accounting procedures of limited companies to manage. That’s the kind of simplicity that can help you save time and money.
Keep Your Company Matters Private
A sole trader has a lot more privacy than a limited company. Details of your sole trader business aren’t published on public registers (such as Companies House) so your money is not made available to the public to see.
This confidentiality during the HMRC registration process as a sole trader can be beneficial if you prefer to keep your business affairs private.
If you want to register as a sole trader with HMRC, you need to follow the steps below, simplifying the registration process.
Step 1: Assess If Sole Trader Status Is Right for You
Before you sign up, consider if being a sole trader is the right option for your business. Sole proprietorship provides the owner full control, decision-making authority and all profit after tax.
But that structure also exposes you to personal liability if facing business debt. Think about things like your type of business, any potential risks, and your long-term goals so you can make sure this is the best option for you.
Step 2: Choose a Business Name
You have the option to trade under your name or choose a different business name if you are a sole trader. If you decide to use a trading name, make sure it meets the legal requirements. Avoid using names like “limited,” “Ltd,” or “LLP,” and you must check that your suggested trading name is not offensive or in any way misleading.
It is also a good idea to research to ensure the business name you choose is available in the UK and not already in use and not being used by someone else. Also consider trademarking to protect your business brand identity.
Step 3: Register for Self-Assessment with HMRC
In order to work legally, after registering as a sole trader, you’ll need to tell HMRC that you are self-employed and register for Self Assessment. This is for both income tax and national insurance. You can sign up online using the Government Gateway website and set up an appropriate user ID and password.
You can also complete and submit a form to HMRC. Register before 5 October after the end of the tax year, which is 5 April. Register the same year you started trading to avoid any HMRC penalties.
Step 4: Register as an Employer
If you choose to employ staff, you will need to register as an employer with HMRC. You will therefore have to operate a PAYE (Pay as You Earn) payroll system, through which you deduct income tax and National Insurance contributions from your employees’ wages and send these to HMRC.
You’ll also need to put eligible staff into a pension scheme and pay contributions and set up Employers’ Liability insurance in order to cover the cost of compensating your staff or former staff if they are injured or fall ill through work. You can sign up as an employer up to 4 weeks before your first payday.
Step 5: Business Licensing and Permits
The type of business you run will dictate the kind of licenses or permits you might need to be legally operational. Licences are required for the sale of alcohol, food premises, public entertainment, some beauty treatments, or if you are conducting business in places such as a market or street trading.
Most types of business licences are issued by your local council. Don’t forget that some of the requirements may vary depending on your local jurisdiction, and it is important to consult with your local authority to find out how licensing will apply to your business.
Step 6: Plan and Pay Your Taxes
Self-employed freelancers are required to complete a Self-Assessment tax return every year to declare income and expenditure. The online filing deadline is 31 January after the end of the tax year.
Fees are payable in two instalments:
First payment on account: 31 January
Second payment on account: 31 July
You may also register for VAT if you meet the threshold provided by HMRC for VAT registration. To cover these tax liabilities, it’s a good idea to save some money out of each paycheck. You can use accounting software, or consult with an accountant, to keep effective management of your finances, and always make payments on time.
Opting to become a sole trader is quite simple and cost-effective way to launch and build your sole trader business in the UK. It provides you total control of your operations, allows you to keep all of your profits and simplifies tax obligations.
However, you should be mindful about your business needs, prepare for your tax responsibilities, and comply with any other legal requirements such as licenses or employer registration, depending on your situation. This guide aims to help you set yourself up as a sole trader with confidence and clarity and be able to focus on creating and developing your business with peace of mind.
Want to register as a sole trader today? Lanop Business and Tax Advisors will help you to set up as a sole trader with HMRC, tax filing and other accounting needs efficiently.
To become a sole trader in the UK all you need to do is register with HM Revenue & Customs (HMRC) for self-assessment. Start by choosing a business name, submit your documents to HMRC, and start filling out your tax return on time.
In the UK, being a sole trader costs nothing to set up. You only have to sign up with HMRC online for self-assessment. Setting up as a sole trader is free of charge. You may have to pay the accountant for registration and other financial management services.
A sole trader is not a company but an individual person working in a business on their own. To start, you need to register as self-employed for tax with HMRC. If you want a formal company structure, you should instead register a company limited by shares with Companies House.
As Managing Partner at Lanop Business & Tax Advisors, Aurangzaib “Zaib” Chawla is more than an accountant, he is a trusted business advisor to entrepreneurs and SMEs. With expertise in structuring, scaling, and international expansion, Zaib guides business owners through every stage of growth, ensuring they not only remain compliant but also unlock new opportunities to thrive.
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At Lanop, I am providing my services as the Managing Partner and Tax Specialist. My expertise includes helping medium and small-scale businesses in their accountancy and legal requirements, business start-up support, strategic review, payroll system review and implementation, VAT and tax compliance to cloud accounting. I am also an expert in financial reporting, identifying and monitoring risks, strategic business development, client retention, market acquisition and deals closure by carefully planning my sales cycle.
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