If you’re starting up as a sole trader then there are some core rules and responsibilities that are essential to know before you begin trading. This simple explanation will guide you through everything you need to know and introduce you to the world of sole traders, as well as our short video below!
How to register as a sole trader with HMRC
The first (and most important) thing to do is register as self-employed with HM Revenue and Customs (HMRC). You can register online.
If you’re a new sole trader who hasn’t sent a tax return before: You will need to register as a new business for Self Assessment tax returns and Class 2 National Insurance Contributions (NICs) at the same time.
If you’re becoming a sole trader for the first time, but you’ve sent Self Assessment tax returns before for other reasons: You’ll need to register as self-employed and for Class 2 NICs using a CWF1 form. You can continue to use your Unique Tax Reference (UTR) number from your previous Self Assessment, but you will need to provide this to HMRC so they can link the accounts.
If you’ve previously submitted Self Assessment as a sole trader, and will now re-start doing so after a break: You can use your existing account information to sign in.
When to register
At the latest, you should register as self-employed within three months from the date you start trading. HMRC may issue penalties to those who don’t register on time, so avoid the added stress!
Submitting Self Assessment tax returns
Currently sole traders must complete a Self Assessment tax return on an annual basis (although this is set to change). Make sure you’re set for your next Self Assessment with this checklist.
The Self Assessment deadline is January 31st following the end of the tax year that you need to submit a return for. If you have an accountant it’s well worth getting your records in to them well in advance! January gets incredibly busy and the more time they have to look at your records, the more time they have to help you save money and deal with any issues.
Check out our Tax Rates article for more information.
Common questions from new sole traders
Any new business owner will have stacks of questions, which is understandable – you’ve never done this before!
As a sole trader you’re not legally separate from your business. This is important, because it means that your taxable turnover is based on the total that you earn from all of your sole trader businesses combined (if you have more than one). You might also decide to make a voluntary VAT registration.
Can I employ staff?
You can employ staff, but you’ll still be ultimately responsible for the business no matter what job you give them. There’s no legal separation between you and the business if you’re a sole trader!
Yup, once more, sole traders aren’t legally separate from the business so if it owes money and can’t pay, this comes from your personal funds!
Do I need an accountant?
Sole traders are busy people and you might not have time to cover all the ins and outs of accounting – even if you’re managing to keep up with your own bookkeeping. Hiring an accountant will give you the chance to focus on what you really need to, safe in the knowledge that your accounts are being taken care of.
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About The Author
I'm an experienced and fully AAT and ACCA qualified accountant, who is enthusiastic about helping business owners succeed. I also love cooking and needlepoint (at different times!). Learn more about Beth.