We discuss how to get set up as a sole trader in the UK including key steps, responsibilities and deadlines that need to be followed.
Getting set up as a sole trader isn’t the most complicated of business structures but there are certain processes and timeframes that need to be followed to get your company ready.
A sole trader runs their own business and is self-employed. With the number of self-employed people rising in recent years, registering as a sole trader is becoming more and more common.
But how do you actually set up as a sole trader and what is involved? We discuss the steps below.
If you would like to discuss your personal circumstances, then please get in touch. We offer sole trader start-up packages as well as self-assessment, bookkeeping and accounting services to help your new business thrive.
What does being a sole trader mean?
Being a sole trader means running a business for yourself. You have control over how and when you work. It also means you take full financial responsibility for both its successes and failures.
Is being a sole trader right for me?
A sole trader is the simplest form of business structure and is therefore easy to set up. The key thing is that you and the business are one, so you keep all the profits from the business after tax but are also liable for any debts incurred by the business.
You can also work for yourself if you set up a limited company, however, in this scenario, the business is its own entity that’s responsible for its own assets and liabilities. We discuss the pros and cons of setting up as a sole trader or limited company here.
Naming your sole trader business
You can choose a name for your business or trade under your own name. As opposed to limited companies, you do not need to register your business name but you must include your name and your business name (if different) on all invoices and official paperwork.
A sole trader business name must not be offensive or include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’. Also, it must not be the same as an existing trademark and if you want to stop people trading under your business name, you can choose to register a trademark yourself.
When to set up as a sole trader
Back in April 2017, the UK government introduced a tax-free trading allowance of £1,000 in a single tax year.
Once your turnover exceeds this £1,000 threshold, you are required to set up as a sole trader and inform HMRC of your income and taxes due. This is done through filling in an annual self-assessment tax return.
You need to inform HMRC and register for self-assessment by 5th October after the tax year your income rose over the £1,000 allowance – the tax year runs from 6th April to 5th April.
So, for example, if you start a business in January 2020 and by the end of the tax year on 5th April 2020 you had a turnover of £10,000 then you would need to have registered by 5th October 2020.
Rules are slightly different if you work in the construction industry or as a fisherman. So please check with your bookkeeper if you fall into one of these categories.
Responsibilities of a sole trader
Although being a sole trader is the simplest form of business structure there are still responsibilities you need to adhere to.
Fill in a self-assessment tax return every year – the online deadline for which is the 31st January following the end of the related tax year.
You need to ensure you keep all records of business sales and expenses.
Pay income tax on your profit which is calculated when completing your self-assessment tax return
You may also need to pay Class 2 and 4 National Insurance
You must also need to register for VAT if your turnover is over £85,000. You can voluntarily register for VAT before you meet this threshold and there are benefits for doing so for some types of businesses.
From registration through to submitting your self-assessment tax return, Lava Sky Accounting can help you to set up as a sole trader. We can also take care of your day-to-day bookkeeping and VAT returns. Get in touch today and let us help you on your new journey.