Sole Trader means you run your own business as an individual.
If you start working for yourself, you’re classed as a sole trader. This means you’re self-employed - even if you haven’t yet told HM Revenue and Customs (HMRC).
You can keep all your business’s profits after you’ve paid tax on them. You’re personally responsible for any losses your business makes. You must also follow certain rules on running and naming your business.
Sole Trader registration
You need to set up as a sole trader if any of the following apply:
- you earned more than £1,000 from self-employment between 6 April 2020 and 5 April 2021.
- you need to prove you’re self-employed, for example to claim Tax-Free Childcare.
- you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits.
To set up as a sole trader, you need to tell HMRC that you pay tax through Self Assessment. Therefore you need to register for Self Assessment and you will need to file a tax return every year.
You must register by 5 October in your business’s second tax year. You could be fined if you do not.
Upon registration, you will receive a letter form HMRC with your Unique Taxpayer Reference (UTR) number.
As a self-employed you will need to:
- keep records of your business’s sales and expenses,
- send a Self Assessment tax return every year,
- pay Income Tax on your profits and Class 2 and Class 4 National Insurance.
You’ll need to apply for a National Insurance number, if you’re moving to the UK to set up a business.
Naming your business
You can trade under your own name, or you can choose another name for your business. You do not need to register your name. You must include your name and business name (if you have one) on official paperwork, for example invoices and letters.
Sole trader names must not, for example include "Ltd", be offensive, be the same asan existing trade mark. If you wish to protect your name from or stop people from trading under your business name, you will need to register your name as a trade mark.
Business records, if you are self-employed
As a self-employed, you must keep records of your business all income and expenses, including records about your personal income.
You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year.