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If you are self-employed and are personally responsible for your business, you may register your business as a sole trader. This is a popular business format, often used for small businesses. This article will explain the steps to register as a sole trader in the UK and at what point you must register. This article will also explore what sole traders and self-assessment tax returns are.
What Does it Mean to be a Sole Trader?
HMRC considers you a sole trader if you work for yourself and are the only business owner. When you operate as a sole trader, you run your business as an individual. You are self-employed and responsible for your business’s operations and finances. Furthermore, you are also personally responsible for all aspects of your business, including any losses or debts incurred.
It is possible to be an employee and a sole trader simultaneously. This occurs when you have a separate job where you work as an employee and are also self-employed for your own business at the same time. For instance, if you work for an employer during the day and run your business during the evening, you are an employee and a sole trader. Nevertheless, even if you are separately employed, you must register as a sole trader if you also run your own business.
Remember that being a sole trader and running your own business comes with great flexibility but does not provide any protection for your personal assets. You will be personally responsible for any debts or legal issues that arise from your business activities.
There are alternative business structures available, such as a limited company. Therefore, it is essential to carefully consider the risks and benefits of operating as a sole trader before deciding on the right structure for your business.
What is a Self-Assessment?
As a sole trader, you must register for self-assessment and pay national insurance and income tax. A self-assessment is the way sole traders pay their income tax. You must register if you earn more than £1000 before expenses from your sole trader activities.
Sole traders must file a self-assessment tax return every year. Therefore, ensure you keep accurate business records and maintain a record of your personal earnings.
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When To Register as a Sole Trader
If you are filing a tax return for the first time, you can register as a sole trader after you begin trading. You must register by 5 October of your business’s second tax year. For example, if you need to file a self-assessment tax return for the April 2022 to April 2023 tax year, you must register for self-assessment by 5 October 2023.
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How to Register as a Sole Trader
Registering as a sole trader is a process that involves informing HMRC that you operate or intend to operate a business as an individual. You register to pay tax through self-assessment and to pay national insurance contributions. You will be responsible for filing your self-assessment, reporting your income and expenses to HMRC, and paying the appropriate tax on your profits.
To register, you register an account on the government’s website and fill out the online self-employed sole trader registration form. If you are unable to submit this form online, you will need to:
- fill out the form;
- print it; and
- post it to the relevant address.
Once registered, ensure that you keep thorough and accurate records of your personal earnings and business activities and submit your self-assessments by the annual deadline.
The following table briefly summarises the main topics introduced in this article.
| Topic | Explanation |
| Sole trader | A sole trader is a person who runs a business by themselves, with no business partners. If you are a sole trader, you must register to pay tax and national insurance with HMRC. |
| Self-assessment tax return | Self-assessment is the system that people who are not taxed through their employer use to pay their income tax. Most individuals will also pay national insurance contributions through self-assessment. |
| When to register as a sole trader | You must register as a sole trader if you earn more than £1000 from your business activities. You can register as a sole trader when you begin trading. You must register by October of the second tax year of trading. |
| How to register as a sole trader | You register by completing an online form or sending a printed version to HMRC. |
Key Takeaways
Being a sole trader means that you own your business and are personally liable for it. If you run your own business, you must register as a sole trader unless you opt for an alternative business structure. You must also complete a self-assessment to pay taxes and keep accurate records of your earnings and expenses.
If you need legal assistance registering as a sole trader or choosing the right structure for your business, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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