UK : How to Set Up as a Sole Trader

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In a previous post, we introduced you to the three main types of business structures to start up a company in the UK : sole trader, partnership and limited company.

In this second part, we are going to take things further by telling you how and where to register as a sole trader and what informations or documents you need to gather before registering.

We will also tell you everything about the deadlines you’ll need to meet and the obligations attached to your new entrepreneur status so you don’t forget anything.

Setting up as a sole trader

A sole trader is not a company. As a sole trader, you carry a business on your own name. That’s the main reason why setting up is so quick and easy to do. Also that explains why sole traders have so little paperwork and obligations compared to limited company owners for example.

How to register as a sole trader ?

As we said just before, registering as a sole trader is nothing like registering a company. The only thing you have to do is registering for Self Assessment with HMRC.

After registering, you will receive a letter with your Unique Taxpayer Reference (UTR) within 10 working days. This paper is the only confirmation you’ll get of you being a sole trader, there is no certificate or other documentation. You should also know that there is no public database for sole traders so your informations will remain private.

What informations do I need to register as a sole trader ?

Gathering the informations you need to fill the online form shouldn’t be too difficult, but just to be sure you have everything you need, here is a list of what details you will be asked to give:

Personal informations

  • Full name
  • Date of birth
  • Previous last name if you changed it
  • National Insurance Number (NINO)
  • Full address (postcode included)
  • Phone number
  • E-mail adress
  • Whether you’re a UK resident or have moved to the UK in the last 12 months

Business informations

  • Date you started working for yourself (it can be past, present or future)
  • Type of work you will be doing
  • Name you will use for your business (if you don’t trade under your name)
  • Full address of your business (postcode included)
  • Phone number for your business

Lastly you will have 3 boxes that you must tick if they apply to your case. Here are these 3 boxes

  1. Subcontractor under CIS
  2. Share fisherman
  3. New Deal 25+ Scheme

As you see there is really nothing complicated. The only thing you need to be careful with is if you want to trade under another name than yours. As a matter of fact, you are not even obliged to register your trading name, but there are some rules you need to be aware of when choosing your name.

  • Your name can’t contain any of the following terms : ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
  • Your name must not be offensive
  • Your name can’t be the same as an existing trade mark. Here is a link where you can search for trademark. Be careful, you can use a name without registering it as a trademark, but if someone else decides to register the same name as a trademark, you will loose your permission to use it.
  • Your name can’t contain a word or expression that suggest a connection with government or local authorities if you didn’t get permission to use it. Check out what sensitive words or expressions require approval.

Once you’ve chosen your business name, you must include it in all official paperwork, for example invoices and letters !

What are my obligations as a sole trader ?

You can start working for yourself as soon as your registration with HMRC is complete. Now, as a sole trader, you will have a few responsibilities.

First, you must keep record of your business sales and expenses. It is not going to be a lot of work at the beginning, but be careful if your business starts to grow ! Plus, if you’re not careful, filling in your tax return is going to become a lot more complicated. The UK government issued a handful guide to help you establish your business records that we encourage you to follow.

Second, you will automatically be sent a self assessment notice by the end of each tax year to fill in your Self Assessment Tax return. A tax year starts on the 6th April and ends on the 5th April every year. You can fill in and submit this paper online. It is encouraged by HMRC and it is the safest and most sure way to do it. Plus, filling your declaration online gives you three extra months to complete it (a paper tax has to be returned by the 31st October, an online tax can be submitted until 31st January).

After you’ve sent your Self Assessment tax return, HMRC will notify you how much Income tax and Class 2 and Class 4 National Insurance you have to pay, it’s really simple ! Below are the tax rates for Income tax and NICs if you want to do a little maths in order to know how much you will owe HMRC.

Income amount Tax rate
<£11.500 0%
£11.500 > £45.000 20%
£45.001>£150.000 40%
>£150.000 45%

Tax rates for year 2017/18 (Source)

Earnings Class 2 NICs
All £2.85/week
Earnings Class 4 NICs
£8.164>£45.000 9% of your earnings
>£45.000 2% of all profits

Rates for class 2 and 4 NICs  (Source)

After you’ve done the tax payment for your first year (basically your first tax payment), you are going to start ‘payments on account’.

Payments on account are based on your due tax from the previous tax year, separated in two remittances : first one on 31st January, second on 31st July. In other words, you can estimate how much your payments on account are going to be by dividing by two the amount you have to pay for the previous year.

Beware : for your first year of activity, your first payment on account is due on the same date than the tax from your self assessment (31st January) ! Be well aware of that and make sure you have enough money to pay the required amount before the deadline, otherwise you’ll be fined by HMRC.

Last but not least : if your profits exceed £85.000, you must register for VAT. You can register for it even if you make less than that, so if you think you may make more than this amount, it may be better to register just to be sure.

That is all you need to know if you want to work as a sole trader.

We hope this article has been useful ! If you’re not sure which business structure you need to register for, check out our previous article : UK : how to choose between sole trader, partnership or limited company ?

Also remember that to make an informed choice, you need to have a very accurate image of what you want your business to be in the future ! The only way to do this is to write a business financial plan. We try to help you with that by providing free Excel financial plan frame : Business plan template Excel free so don’t hesitate to download it by clicking the link !

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