If you are a sole trader, you run your own business and you are known as self-employed by HMRC. As a sole trader, you are responsible for any losses your business makes, however you can keep all your business’s profits after you have paid tax on them.
The first step to becoming a sole trader is to choose a name. Make sure you have chosen a name that is not being used by any other business. It can also be worth registering your name as a trademark to prevent other people from using it. You can also trade under your own name. Just bear in mind that if you decide to use a business name, you must make sure that your business stationery displays your own name as well as the trading name of the business.
Setting up as a sole trader
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 6th April 2020 and 5 April 2021,
- you need to prove you are self-employed,
- you want to make voluntary Class 2 National Insurance payments too help you qualify for benefits.
How to set up as a sole trader
You will need to tell HMRC that you pay tax through self assessment and you will need to file a tax return every year.
If you do this 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 (Class 2 and Class 4 National insurance).
You will also need to register for VAT if your turnover is over £85,000, however you can register voluntarily if it suits your business.
If you would like to speak to us about registering as a sole trader, then please get in touch.