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How To Register As a Sole Trader?

Enjoy the flexibility of working for yourself? Want to find out if registering as a sole trader is right for you? We’ll share with you everything you need to know, from what exactly a sole trader is, to how our services can make registering as a sole trader quick and simple.

Setting up as a sole trader is the fastest and easiest way to become your own boss. With little in the way of paperwork and full control over how you work, you can get your new business up and running straight away.

What Is a Sole Trader?

A sole trader is a self-employed person who owns and runs their own business as an individual.

As a sole trader, there is no distinction between you and your business. This means that you get to keep all your business’s profits after tax, but it also means that you’re personally responsible for any losses the business makes.

According to the UK Government, in 2019, almost 60% of British businesses were sole traders. Examples of sole trader businesses are plumbers, gardeners, freelance workers, home tutors, contract workers and many, many more.

Is a Sole Trader a Company?

Simply put, the answer is no.

Registering as a sole trader does not give your business company status.

Registering as a sole trader is slightly quicker than setting up a limited company. There’s no paperwork, your business affairs remain private and you can keep all the profits you make after tax. If you want to start small and expand your business later, operating as a sole trader allows you to do that. You can easily change your business structure to a limited company further down the line.

However, as a sole trader, you are the business. It's not a separate legal entity, as it would be if you formed a limited company. Therefore, you're liable for your business's debts. If you're starting a business that won't build up big debts, becoming a sole trader isn't too risky. If you are likely to build up significant debts, setting up a limited company would be a less risky option.

How To Register As a Sole Trader ?

The first thing to consider when you choose to go down the sole trader route is the name that you want to trade under. This can be your own name or something creative but bear in mind that trading names for sole traders must not:

  • include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public
  • limited company’ or ‘plc’
  • contain a ‘sensitive’ word or expression or suggest a connection with government or local authorities, unless permitted to do so
  • be offensive
  • be the same as an existing trademark

In the UK, there’s a certain amount that you can earn from self-employment before Her Majesty's Revenue and Customs (HMRC) expects you to pay tax - this is called the trading allowance . If you think you’ll earn above the trading allowance from your sole trader business in a single tax year, you need to register as self-employed in order to file a tax return and pay tax on your earnings.

As a sole trader, you’ll need to pay income tax based on your business profits, along with National Insurance contributions (NICs). To register you simply need to tell HMRC that it can expect a Self Assessment tax return from you. You can either do this by registering online or by printing out and posting the relevant form from HMRC’s website.

Once you’ve told HMRC that you plan to earn income as a sole trader, they will send you a Unique Taxpayer Reference (UTR) and set up your online account, where you’ll be able to access the Self Assessment service. Shortly after that, HMRC will send you a letter with an activation code that will enable you to get your online account up and running. This is where you’ll get information about your tax status, such as how much tax you’ve paid in previous years, your tax code and when your next tax return is due.

Ready to Start Your Sole Trader Business?

Whether you want to become a sole trader or go the limited company route, forming your business can be a time-consuming process. At Mint Formations, we help you form your self-employed business and take away all the stress that comes with registering. We offer standard and bespoke packages to meet your needs and can help through every step of the process to get your sole trader business up and running.

Are you ready to start a sole trader business? We’ll secure your business name and get you registered fast so you can start doing what you love.

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