How to register as a sole trader

According to GOV.UK, you must register as a sole trader if you earn more than £1,000 in a tax year, or you need to prove you are self-employed (for example to claim Tax-Free Childcare), or you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits and State Pension.

If any of the above criteria applies to you, follow our comprehensive guide below, created in collaboration with Markel Tax, to help you navigate how to register as a sole trader.

What is a sole trader?

A sole trader is a self-employed individual who owns and runs their own business, without the need to form a partnership or a limited company. Unlike a limited company, a sole trader is personally responsible for all aspects of their business, including making decisions and taking on any financial debt. Accounting Software, FreeAgent, informs how this business structure provides no distinction between you and your business, meaning that personal assets could be at risk if the business fails. However, the simplicity and ease of registering as a sole trader makes it a popular choice for many entrepreneurs.

FreshBooks shares the professions able to register and operate as a sole trader are not limited to traditional trades, such as plumbers, electricians and builders, but also includes freelancers, tutors and interior designers. While all sole traders are self-employed, not all self-employed individuals operate as sole traders as some may work through partnerships or limited companies.

What are the advantages of being a sole trader?

• Complete control: As a sole trader, you have full control over all business decisions without needing to consult with any partners or shareholders.
• Direct profit: You retain all the profits after tax, allowing you to directly benefit from your business's success.
• Simple set-up: Registering as a sole trader is straightforward and involves less formal-ities and paperwork compared to other business structures.
• Privacy: Sole traders do not need to register with Companies House or publish their fi-nancial statements publicly. The accounting requirements are also less complex.
• Flexibility: A sole trader can change their mind as they operate their business, as it is easy to move to a limited company if they choose.

How do I register as a sole trader?

Registering as a sole trader is a quick and easy process. The registration steps are as follows:

1. Contact HM Revenue and Customs to inform them that you are self-employed and will need to pay taxes as a sole trader. You can do this through your Government Gateway account.
2. Complete a HMRC Self-Assessment form, either online or by post. You will need to provide your details, such as: National Insurance number, name, sole trader business name, date of birth and address.
3. Once your self-assessment has been processed, HMRC will send you a Unique Taxpayer Reference and an activation code to activate your online account.
4. After you have registered, you will need to complete a Self-Assessment tax return each year, which can be done on your online account or by post.

FAQs

Can a sole trader have employees?

Yes, a sole trader can have employees. While the term "sole trader" implies that the business is owned and operated by one person, it does not prevent being able to hire staff to assist with business operations. Caroola Accountancy emphasises how sole traders must comply with employment laws if they choose to hire employees, including registering as an employer with HMRC, providing contracts of employment, and ensuring they meet employer obligations regarding pay, benefits, and workplace safety.

What expenses can I claim as a sole trader?

As a sole trader, you can claim a wide range of business-related expenses to reduce your taxable profit. According to GOV.UK, common expenses include:

• office costs – for example stationery or phone bills
• travel costs – for example fuel, parking, train or bus fares
• clothing expenses – for example uniforms
• staff costs – for example salaries or subcontractor costs
• things you buy to sell on – for example stock or raw materials
• financial costs – for example insurance or bank charges
• costs of your business premises – for example heating, lighting, business rates
• advertising or marketing – for example website costs
• training courses related to your business – for example refresher courses

Do I need a business account as a sole trader?

Although it is not mandatory for sole traders to have a dedicated bank account, opening a separate business bank account allows you to keep your personal and business finances separate. This makes it easier to manage your finances and simplifies the process of completing your tax return.

How much tax will I pay as a sole trader?

Personal Tax Accountant providers, TaxScouts, share how a sole trader will need to pay:

• Income Tax: The UK rates are shown in the table below.

• National Insurance: Sole traders have to pay Class 4 NI contributions.
• Value Added Tax: Sole Traders who have earned over £90,000 in the past 12 months or expect to in the next 30 days must register for this.

Do sole traders pay corporation tax?

No, a sole trader does not have to pay corporation tax. Corporation tax only applies to limited companies.

Can a sole trader be VAT registered?

As a sole trader, you must register for VAT (Value Added Tax) if your business's taxable turnover exceeds the VAT registration threshold, which is currently set at £90,000 per year. Even if your turnover is below this threshold, you can choose to register voluntarily.

Can a sole trader claim VAT back?

If you register for VAT, you can reclaim VAT on business expenses.

Do sole traders have a company number?

Sole traders do not need to have a company number as they do not need to register with Companies House. H3: Does IR35 apply to sole traders? IR35 does not apply to sole traders. However, Markel Tax emphasise the importance of reviewing working arrangements to determine the appropriate tax status.

Does it cost to register as a sole trader?

No, it is free to register as a sole trader.

Sole trader insurance

While it is not a legal requirement, business insurance can help to protect you, your business, and your clients. Markel Direct offer Sole Trader insurance, which includes public liability insurance, professional indemnity insurance and more. The type of sole trader insurance suitable for your business will depend on your personal circumstances, for example the industry you work in, where you carry out your work, and whether you have any employees.

Learn more about our sole trader insurance solutions.

Please note: This article provides guidance for information purposes only. It should not be relied upon wholly when making or taking important business decisions – always seek the services of an appropriately qualified professional. The views expressed by websites referenced to are limited to those of the websites, and do not necessarily reflect the views of Markel Direct.