Set up as a sole trader
If you're a sole trader, you run your own business as an individual and are self-employed.
You can keep all your business's profits after you've paid tax on them. You're personally responsible for any losses your business makes. You must also follow certain rules on running and naming your business.
You need to set up as a sole trader if any of the following apply:
- you earned more than £1,000 from self-employment between 6 April 2019 and 5 April 2020
- you need to prove you're self-employed, for example to claim Tax-Free Childcare
- you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits
If you are unsure about your status, see working for yourself.
How to register as a sole trader
To set up as a sole trader, you need to register for register for Self Assessment and file a tax return every year.
You'll need to:
- keep records of your business's sales and expenses
- send a Self Assessment tax return every year
- pay Income Tax on your profits and Class 2 and Class 4 National Insurance - use HMRC's calculator to help you budget for this
You'll need to apply for a National Insurance number if you're moving to the UK to set up a business.
You must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT. Read GOV.UK guidance on VAT registration.
Working in construction industry
Register with HMRC for the Construction Industry Scheme (CIS) if you're working in the construction industry as a subcontractor or contractor.
Naming your business as a sole trader
You can trade under your own name, or you can choose another name for your business. You don't need to register your name.
As a sole trader, you must include your name and business name (if you have one) on official paperwork, for example invoices and letters.
Sole trader names must not:
- include 'limited', 'Ltd', 'limited liability partnership', 'LLP', 'public limited company' or 'plc'
- be offensive
- be the same as an existing trade mark
Your name also can't contain a 'sensitive' word or expression, or suggest a connection with government or local authorities, unless you get permission.
For example, to use 'Accredited' in your company's name, you need permission from the Department for Business, Energy and Industrial Strategy (BEIS).
GOV.UK outlines which words you need permission to use, and who from.
You'll need to register your name as a trade mark with the Intellectual Property Office if you want to stop people from trading under your business name.
Checklist: set up as a sole trader
To set yourself up as a sole trader, where you run your own business as an individual and are self-employed, there a number of things you must do. Ensure that you:
- Register for Self Assessment with HM Revenue & Customs (HMRC) so they can set up your tax and National Insurance records. See understanding Self Assessment and your tax return.
- Obtain any planning permission that you may need from your local council. Find your local council in Northern Ireland.
- Obtain any licences or permits that you may need. Use the licence finder tool to find out what licences or permits your business may require.
- Contact the Land and Property Services to find out whether you need to pay business rates. See business rates: the basics.
- Contact HMRC to register for VAT if you expect to have turnover of more than £85,000 a year. See registering for VAT.
- Register with HMRC for PAYE (Pay As You Earn) if you employ staff. See registering and getting started with PAYE.
- Register with HMRC if you are a contractor or subcontractor in the construction industry. See contractors and the Construction Industry Scheme.
- Set up a financial record-keeping system. See set up a basic record-keeping system.
- Put your name on all your business stationery, including letters, invoices, receipts and cheques. See name your business.
- Set terms and conditions for your customers, such as when your invoices are to be paid. See ensure customers pay you on time.
- Ensure all business insurance requirements are in place. See business insurance: the basics.
It's worth remembering that this is just a start. As you continue in business, you may have other legal and tax issues to bear in mind.