What is a sole trader?
As a sole trader, you are self-employed and run your own business as an individual, keeping all your profits after tax.
In comparison to contracting through a limited company where you would be seen as a completely separate entity to your company, as a sole trader you will be personally liable for any losses incurred.
How do I set up as a sole trader?
You will need to set up as a sole trader if you have been carrying out self-employed work and have earned more than £1,000 in the tax year (6th April-5th April).
You will need to let HMRC know that you are self-employed, which is a simple process that can be completed online.
After you have registered, you will be given a Unique Taxpayer Reference (UTR) – a 10-digit number that you will need in order to file your annual self-assessment tax return.
Can I create a name for my business?
As a sole trader, you are able to either trade under your own name, or you can choose a different business name.
You’ll just need to ensure that your business name isn’t the same as an existing trade mark, isn’t offensive and does not include the following: limited, Ltd, limited liability partnership, LLP, public limited company or plc.
What responsibilities do I have as a sole trader?
Here’s a general idea of your obligations as a sole trader:
- Keep business records and proof of expenses – you’ll need to choose a method that works for you, whether this is traditional or cash basis accounting.
- File your self-assessment – the business and expenses records are needed to file your tax return accurately. A self-assessment tax return will need to be completed on an annual basis with all owed tax paid by the 31st of January. Read our What is a Self Assessment Tax Return? page for more information.There’s also ‘Payments on Account’ to consider – these are basically advance payments towards your next tax bill, due on the 31st of January (on top of your tax return) and the 31st of July.
You won’t need to pay these if your last tax bill was less than £1,000, or if you’ve already paid 80% of all the tax you owe.
- Pay Class 2 and Class 4 National Insurance – you’ll pay for Class 2 if your profits are £6,725 or more a year, and Class 4 if your profits are £9,881 or more a year. This can be paid through your self-assessment.
- Register for VAT – you may need to register for VAT, but you’ll only need to do this if your turnover is over £85,000.
At Dolan, we provide accountancy services for sole traders, freelancers and SMEs, so if you need any help we can offer advice on tax issues, give guidance on National Insurance Contributions and complete your self-assessment tax return, plus so much more.
Read our Services for freelancers, sole traders and the self-employed page for more information on the services we provide.