A person who sets up and owns their own business is called a sole trader or self-employed. It is the simplest and easiest way to tell the government about your business activity. It is a kind of business structure that is popular among freelancers.
Sole trader registration would be the right option for you if you are starting a small business on your own or simply testing the waters on your new business plan. You are personally liable for any business profit/loss that you may incur and take sole responsibility for everything that relates to your business.
Step by step process for sole trader registration:
- First, you have to choose a business name based on certain legal guidelines
- You will have to register with HMRC as a sole trader for tax purposes
- HMRC will send a Unique Tax Reference (UTR) number after your sole trader registration has been completed. This process will take around 10 business days
- It is not mandatory to have a separate business bank account, but you can keep your personal and business expenditure separate if you have a bank account
Legal responsibilities as a sole trader:
- All your business transactions must be recorded and secured for at least 6 years
- You have to complete an annual Self-Assessment tax return
- National insurance liabilities and income tax has to be paid on time
- The self-employed have to pay Class 4 (annually) and Class 2 (weekly) National insurance contributions (annually)
- You must register for VAT if the annual turnover of your business is £85,000 or more
- You will need to register for PAYE and operate a PAYE payroll scheme if you employ other people
- You should register for the Construction Industry Scheme if you are working in the construction industry as a contractor or sub-contractor
- You should draw up a “deed of partnership” if you engage in business with other people. This deed has information on who does what and what happens if something goes amiss
What information do I need to secure?
- Sales and purchase invoices
- Fuel receipts and other business-related expenses
- Business bank statements and Cheque book stubs
- VAT information (if VAT registered)
- Summaries and wage slips if you employ staff
- Details of loans and dues
- Details of capital items such as machinery, furniture, cars and so on
- P60s for employment and salary income
The bottom line:
We have covered the important steps you will need for sole trader registration. If you require further assistance during the application process, we are always happy to help.