Setting up as a Sole trader

Did you know? "Sole trader" does not necessarily mean a "one man band."

What ‘sole trader’ means

You’re a sole trader if you’re running your own business as an individual. You can keep all your business’ profits after you’ve paid tax on them.

You can take on staff - ‘sole trader’ means you’re responsible for the business, not that you have to work alone.

Legal responsibilities

You’re personally responsible for:

• any losses your business makes
• bills for things you buy for your business, like stock or equipment
• keeping records of your business’ sales and spending

How to set up as sole trader

You must register with HM Revenue and Customs (HMRC) as soon as you can after starting your business.

If you register later than 5 October in your business’ second tax year, you could be charged a penalty.

Example
If you start up as a sole trader during tax year 2014 to 2015, you must register before 5 October 2015.

Sole traders’ tax responsibilities

You must:

• send a Self Assessment tax return every year
• pay Income Tax on the profits your business makes
• pay National Insurance

You must also register for VAT if you expect your business’ takings to be more than £81,000 a year.

More on sole traders

Sole traders must register with HM Revenue and Customs (HMRC) and follow certain rules on running and naming their business.

If you’re a sole trader, you’re running your own business as an individual. This is known as being ‘self-employed’. You can keep all your business’ profits after you’ve paid tax on them.

You can take on staff - ‘sole trader’ means you’re responsible for the business, not that you have to work alone.

Register for Self Assessment

You must register for Self Assessment with HMRC as soon as you can after starting your business.

Your responsibilities

You’re responsible for:

• your business debts
• bills for anything you buy for your business, like stock or equipment
• keeping records of your business’ sales and expenses
• sending a Self Assessment tax return every year
• paying Income Tax on the profits your business makes and National Insurance
• registering for VAT if your turnover reaches the VAT theshold
• registering with the Construction Industry Scheme (CIS) if you’re a contractor or sub-contractor in the construction industry.

Naming your business as a sole trader

You can use your own name or trade under a business name. There are rules on using a business name. For example, you can’t:

• use the terms ‘Limited,’ ‘Ltd’, ‘public limited company,’ ‘plc,’ ‘limited liability partnership,’ ‘LLP’ or their Welsh equivalents
• use sensitive words or expressions unless you have permission
• suggest a connection with government or local authorities
• use a name that is too similar to a registered trademark or an existing business in the same area or sector
• be offensive

You must include your own name and business name (if you have one) on any official paperwork, like invoices and letters.

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