How to set up and register your business as a sole trader?

For anyone providing professional services, the chance to set up as a sole trader may become a worthwhile consideration. While it’s not the right choice for all businesses, sole traders often benefit from circumstances you wouldn’t get in business otherwise. If you want to consider getting set up as a sole trader, we’ll look at some of the reasons why it might be of use to you – and help you better understand the sign-up process.

So, what is a sole trader? Why is it useful?

The benefits of sole trader registration

  • If you are considered a sole trader, then you run the business – you are in complete control. An individual who is self-employed and who tenders their services to others. This means that, after tax, you can keep all your business’s profits – but also take full responsibility for all losses.

  • If you are starting out a new business as a professional, or merely dipping your toes in the water of a new profession, sole trader registration is comparatively low-cost, low-effort and low-risk in comparison to other forms of company set-up.

  • Being registered as a sole trader is often considered much easier from a taxation perspective. While you hold personal liability for just about everything your business takes on that insurance won’t cover, you benefit from having a much less stressful time filling out tax returns, as Self-Assessment is often much easier in comparison to other forms of business taxation.

  • Setting up as a sole trader works whether you are a contracted professional working in your industry or you merely make or sell items at profit. While other forms of business set-up have more restrictive laws for use, setting up as a sole trader is much less restrictive.

How to register as a sole trader

Getting sole trader registered is very simple. You will need to visit the official Gov.UK website, and register for Self-Assessment. The process is relatively easy to follow, though some questions might arise which requires professional assistance. To qualify to start up as a sole trader, all you need to do is make sure that you meet the following criteria:

  • Ensure that you have earned more than £1,000 in self-employment from 6th April to 5th April in one tax year.

  • Show proof of self-employment for claims on benefits such as Tax-Free Childcare allowance.

  • You want to make voluntary Class 2 National Insurance payments to help qualify for benefits.

Choosing a business name

One important part of sole trader registration is choosing the right name. Many choose to trade under their own name, but some will choose to build their sole trader business under a specific business name. You will need to include both your own name and your business name on all official paperwork, should you choose to have a business name also. To register as a sole trader, your name must not:

  • Include the terms Limited, Ltd, Public Limited Company (or PLC) or Limited Liability Partnership (or LLP).

  • Carry any names which are the same as any other company name which is trademarked.

  • Contain any kind of offensive, abusive or insulting content within the company name.

  • Mention any kind of ‘sensitive’ subject or similar note of controversy.

  • Assume or infer any kind of official government/official connection without express permission.

It would also be wise to consider having the name of your business trademarked if you choose to have a business name. This helps you to protect your new brand, and will stop people offering your (or other) professional services under your business name.

The responsibilities of a sole trader

After you sign up to be a sole trader, you agree to several rights and responsibilities. One of the most important responsibilities is that you keep clear records of all your business’s sales and expenditure on an annual basis. This becomes a key part of best business practice, so it’s important that you begin strenuous record keeping.

To make sure you give the government and HMRC the right details, you will need to provide a Self-Assessment tax return on an annual basis. This is a vital part of being a sole trader, but it’s important that you do not miss out on key deadlines and dates for your tax return. Doing so can incur penalties and other problems. If you worry about getting your tax responsibilities right each year, contact a professional to help you put the right plan in place.

You’ll also need to start paying Income Tax on all profits, and you will need to start paying Class 2 and Class 4 National Insurance. You can use the official HMRC calculator for help, or you can work out the right figures when you hire a professional to assist with sole trader registration.

You will also need to now apply for a National Insurance number if you are moving to the United Kingdom to start your business. If you are not already a UK resident, we recommend that you look closer at National Insurance number registration.

VAT registration

Lastly, it’s important that you pay attention to your requirements as a sole trader with regards to Value Added Tax (VAT). If your turnover exceeds £85,000, then you will need to register for VAT. You might, though, find that VAT registration is beneficial to your business outside of the threshold mentioned above. You should look to receive personal advice about the sole trader situation you currently reside within.

This will help you to make sure that you can, for example, re-claim VAT if you mostly sell to other businesses who are VAT-registered. Several reasons exist why you should consider this, we recommend you seek out advice to better determine what will work for you.

Getting sole trader registration right

Of course, when you register as a sole trader it’s important that you do it right. For that reason, working with professionals in company registration provides many benefits. For one, you can quickly put to bed problems like inaccurate filing or inconsistencies with your registration. If you would like to avoid such issues, then seeking out professional advice will yield many benefits.

For more information, feel free to contact the team at Devonshire Green. We can help you to better understand any issues you might have with getting set up as a sole trader. 

 

Nick Bagga