How to Register as a Sole Trader

What is a Sole Trader?

A sole trader is the simplest business structure available in the UK. When you register as a sole trader, you work for yourself and run your own business as an individual. You make all the business decisions and keep all profits after paying tax. You can start as a sole trader while maintaining other employment.

The sole trader structure offers simplicity in setup and operation. Most new business owners choose this structure when first starting out because it requires minimal paperwork and has lower costs compared to other business structures.

For the official government definition, visit: What a sole trader is – GOV.UK

Sole Trader Responsibilities

As a sole trader, you have several legal and financial responsibilities to consider before registering.

Legal Liability

Sole trader businesses have ‘unlimited liability’. This means you are personally responsible for all business debts. If your business struggles financially, your personal assets, including your home, could be at risk to pay business debts. This differs from limited companies, which provide more protection.

You can reduce some risk by getting appropriate business insurance. This helps protect you against certain claims and losses.

Financial Management

As a sole trader, you:

• Keep all profits after tax
• Are responsible for filing an annual Self Assessment tax return
• Must pay Income Tax and National Insurance contributions on your profits
• Need to maintain accurate financial records for your business

Business Name

You can trade under your own name or choose a specific business name. If you select a business name, you don’t need to register it officially. However, your business name cannot:

• Include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’, or ‘plc’
• Be offensive
• Be the same as an existing trademark
• Suggest connection with government or local authorities without permission

Record Keeping

Good record-keeping is essential for all sole traders. You must track:

• All sales and income
• Business expenses
• VAT records (if registered)
• PAYE records (if you employ staff)
• Personal income details

Maintaining organized records helps you complete your tax return accurately and on time. It also helps identify business opportunities and track your financial progress.

When to Register as a Sole Trader

You must register as a sole trader if any of these apply:

• You earn more than £1,000 from self-employment in a tax year (from April 6 to April 5)
• You need to prove you’re self-employed (for benefits like Tax-Free Childcare)
• You want to make voluntary Class 2 National Insurance payments to qualify for benefits and State Pension
• You need to register for the Construction Industry Scheme (CIS) or as a share fisher

Even if you’ve already registered for Self Assessment for another reason, you must register again as a sole trader. This ensures you’re properly registered for Class 2 National Insurance contributions.

How to Register as a Sole Trader

The registration process involves a few simple steps:

Step 1: Check if You Need to Register

Before registering, confirm that the sole trader status suits your business needs. Consider:

• Your expected income
• Your liability needs
• Your growth plans
• Tax implications

If you’ll earn less than £1,000 in a tax year, you might qualify for the Trading Allowance, which means you don’t need to register immediately.

Step 2: Choose Your Business Name

Decide whether to use your personal name or a business name. Remember, this name will appear on all your business documentation, including invoices and correspondence.

Step 3: Register for Self Assessment

Register for Self Assessment with HM Revenue and Customs (HMRC) as soon as possible after starting your business. At the latest, register by October 5 in your business’s second tax year.

For example, if you start your business in the tax year April 2024 to April 2025, register by October 5, 2025.

To register, visit the official UK government website: Register for Self Assessment

You can also use the HMRC tool to check if you need to register: Check if you need to send a Self Assessment tax return

The registration process depends on your circumstances:

• If you’ve never filed a Self Assessment tax return before, register as a new user
• If you’ve filed a Self Assessment tax return in the past but not as self-employed, add self-employment to your tax return
• If you’re registering a partnership, one partner must be nominated to register the partnership

For step-by-step guidance on setting up as a sole trader, you can also visit: Set up as a sole trader: step by step

Step 4: Provide Required Information

During registration, you’ll need to provide:

• Your National Insurance number
• Full name
• Date of birth
• Contact details (address, phone number, email)
• Business name
• Business address
• Business start date
• Type of work your business does

If you don’t have a National Insurance number, apply for one from Jobcentre Plus. If you have one but can’t find it, fill in form CA5403 online or call 0300 200 3502.

Step 5: Complete the Registration Process

After submitting your registration, HMRC will send you an activation code by post. This typically takes 10 working days (21 days if you’re abroad). You’ll need this code when you log in to your Government Gateway account for the first time.

The registration process is free. There are no fees to register as a sole trader.

HMRC Self Assessment Online Tools and Resources

HMRC offers several digital tools to help sole traders manage their Self Assessment responsibilities efficiently. These online services aim to simplify the tax filing process and reduce the need for direct contact with HMRC.

Government Gateway Account

After registering for Self Assessment, you’ll receive a Unique Taxpayer Reference (UTR) number. You’ll need this UTR to set up your Government Gateway account, which serves as your secure portal for all HMRC-related services. Through this account, you can:

• Access your personal tax account
• File your Self Assessment tax return
• View your tax calculations
• Make payments
• Check deadlines and payment history
• Update personal information

HMRC Digital Assistant and Support Tools

HMRC provides various support tools to help sole traders with their tax obligations:

• Digital Assistant: HMRC’s online assistant can answer common questions about Self Assessment, providing immediate responses to basic queries.
• Self Assessment Eligibility Checker: Use the online tool at GOV.UK to check if you need to submit a Self Assessment tax return.
• Help and Support Pages: HMRC’s website contains detailed guidance notes, videos, and step-by-step instructions for completing each section of your tax return.
• Community Forums: HMRC hosts forums where you can post questions and see answers to similar queries from other users.
• YouTube Tutorials: HMRC’s YouTube channel features instructional videos on various aspects of Self Assessment.
• HMRC Mobile App: Download the official HMRC app to manage your tax affairs, check your tax code, and track the status of any claims or refunds.

Making Tax Digital (MTD)

From April 2026, HMRC will begin implementing Making Tax Digital for Income Tax. This will require sole traders with qualifying income above £50,000 to:

• Keep digital records
• Use MTD-compatible software
• Submit quarterly summaries of income and expenses

The threshold will reduce to £30,000 in April 2027 and to £20,000 in April 2028. This represents the most significant change to Self Assessment since its introduction in 1997. Consider familiarizing yourself with digital accounting systems now to prepare for these changes.

Third-Party Software Options

HMRC recognizes various third-party software solutions that can help you manage your Self Assessment. These range from basic tax filing tools to comprehensive accounting packages:

• Basic Self Assessment software focused solely on completing and submitting your tax return
• Comprehensive accounting software that tracks income and expenses throughout the year and automatically populates your tax return
• Mobile apps with receipt scanning capabilities to digitize your record-keeping
• Cloud-based solutions that allow you to access your financial information from anywhere

These tools can significantly simplify your tax responsibilities, reduce errors, and help ensure you meet all deadlines. Consider your specific needs and budget when choosing software.

Sole Trader After Registration: Your Ongoing Responsibilities

Once registered, you have several ongoing obligations:

Filing Your Tax Return

After each tax year (April 6 to April 5), you must report your self-employment income by submitting a Self Assessment tax return. The deadlines are:

• Paper tax returns: October 31
• Online tax returns: January 31
• Tax payment: January 31 following the end of the tax year

You’ll need to calculate your profit by deducting allowable business expenses from your total income. HMRC uses this figure to determine your tax liability.

Banking Arrangements

While not legally required, opening a separate business bank account offers significant benefits:

• Creates clear separation between personal and business finances
• Makes tax return preparation simpler
• Looks professional when receiving client payments
• Helps track business income and expenses
• Makes cash flow management easier

Most personal bank accounts prohibit business transactions in their terms, so using a dedicated business account helps you avoid potential issues.

VAT Registration

You must register for VAT if your business turnover exceeds £90,000 in a 12-month period or will exceed this threshold in the next 30 days.

Some sole traders register voluntarily even with lower turnover to:

• Reclaim VAT on business purchases
• Appear more established to clients and suppliers

However, VAT registration adds administrative work, including keeping VAT records, issuing VAT invoices, and filing quarterly VAT returns.

Insurance Requirements

Depending on your business type, you may need different insurance:

Legally required insurance:

• Motor insurance for any vehicle used for business
• Employers’ liability insurance if you hire staff
• Professional indemnity insurance for certain professions (legal, financial services)

Recommended insurance:

• Public liability insurance
• Business contents insurance
• Business interruption insurance
• Income protection insurance
• Professional indemnity insurance

Your specific insurance needs depend on your industry, business activities, and client requirements.

Claiming Business Expenses

As a sole trader, you can claim tax relief on business expenses that are “wholly and exclusively” for business purposes. This reduces your taxable profit and lowers your tax bill.

Common allowable expenses include:

• Office costs (rent, utilities, phone, internet)
• Travel expenses (fuel, train tickets, bus fares)
• Clothing expenses (uniforms, protective gear)
• Staff costs (salaries, subcontractor fees)
• Stock and raw materials
• Financial costs (insurance, bank charges)
• Marketing costs (website, advertising)
• Training courses related to your business

For the official HMRC guidance on allowable expenses, visit: Expenses if you’re self-employed

If you work from home or use your vehicle for business, you may benefit from using simplified expenses. These are flat rates that can make record-keeping easier: Simplified expenses if you’re self-employed

If your business has gross income of £1,000 or less, you might be eligible for the trading allowance, which means you don’t need to register or declare expenses: Tax-free allowances on property and trading income

Keep receipts and records of all business expenses for at least five years after the relevant tax year ends. HMRC may investigate your tax returns during this period.

Taxation for Sole Traders

Sole traders pay tax on their business profits, not their total income. Your profit is your total income less allowable expenses.

The current tax rates (2024/2025) are:

Taxable income (£)	Tax rate
£0 – £12,570	0% (Personal Allowance)
£12,571 – £37,700	20% (Basic rate)
£37,701 – £125,140	40% (Higher rate)
Over £125,141	45% (Additional rate)

You also pay National Insurance Contributions:

• Class 2 (flat weekly rate) if your profits exceed the Small Profits Threshold
• Class 4 (percentage of profits) at 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270

To estimate how much tax you’ll need to pay, use HMRC’s Self Assessment calculator: Estimate your Self Assessment tax bill

HMRC provides a variety of tools and calculators to help with different aspects of running your business: HMRC tools and calculators

Best Business Bank Accounts for Sole Traders

While sole traders are not legally required to have a separate business bank account (unlike limited companies), having one makes financial management much simpler. A dedicated business account helps you keep personal and business finances separate, making tax returns easier and creating a more professional image for your business.

Tide

Tide provides a free business account option that’s popular among sole traders and freelancers. The platform serves over a million businesses globally, offering tools like invoice management, expense cards, accounting integrations, and business admin features. Tide accounts are FSCS-protected through their partnership with ClearBank. Their pay-as-you-go model means you only pay small fees for transactions as needed, with the option to upgrade to paid plans for additional features as your business grows.

ANNA Money

ANNA (Absolutely No Nonsense Admin) offers a business account designed specifically for sole traders and small businesses. The account focuses on simplifying everyday administrative tasks, bringing invoicing, receipt matching, and VAT filing together in one app. ANNA provides 24/7 customer support with quick response times through their in-app chat. While the basic account has no monthly fee, it operates on a pay-as-you-go model with small transaction charges. Note that ANNA is not a bank, so accounts are not FSCS-protected.

Countingup Business Account

Countingup offers a unique combined business account and accounting software solution tailored for sole traders. The account includes features like automated bookkeeping, tax estimates, and live business insights. Monthly subscription fees are based on your deposit amounts, starting from £3 per month for lower transaction volumes, with a three-month free trial period. Countingup allows you to create and send unlimited professional invoices, track payments, and share accounting data directly with your accountant.

When choosing a business bank account, consider factors such as:

• Account fees (monthly charges and transaction costs)
• Integration with accounting software
• Mobile app functionality
• Cash deposit options
• FSCS protection
• Customer support availability
• International payment capabilities
• Additional features (invoicing, receipt capture, tax tools)

Remember that your banking needs may change as your business grows, so choose an account that offers flexibility and scalability.

Accounting Software for Sole Traders

Using accounting software makes managing your finances easier and helps ensure tax compliance. Popular options include:

QuickBooks

• Price: From £10/month
• Features: Self Assessment preparation, invoicing, expense tracking
• MTD-recognized: Yes

FreeAgent

• Price: Free with certain bank accounts; from £19/month for sole traders; from £10/month for landlords (Often discounted + 10% Off Lifetime with my special coupon code: 4ip82cra)
• Features: Invoicing, time tracking, expense management, mobile app
• MTD-recognized: Yes

Xero

• Price: From £16/month
• Features: Invoicing, inventory, payroll, expense claims
• MTD-recognized: Yes

FreshBooks

• Price: From £7.50/month
• Features: User-friendly interface, invoicing, expense tracking
• MTD-recognized: Yes

Sage

• Price: Free basic version; paid plans from £15/month
• Features: Invoicing, cash flow management, payroll
• MTD-recognized: Yes (paid version)

Zoho Books

• Price: Free basic version; paid plans from £12/month
• Features: Invoicing, expense tracking, inventory management
• MTD-recognized: In development

Online Accountant – From Only £22.50 a Month

The Accountancy Partnership offers nationwide online accounting solutions at a predictable monthly rate. Each client receives their own personal accountant who prepares financial records and tax filings while providing limitless assistance via email, telephone, or video meetings. Their service includes straightforward digital accounting tools, automated deadline alerts, and yearly tax optimization reviews to help reduce what you owe HMRC. Clients also benefit from complementary HMRC investigation defense, regular bookkeeping oversight through Pandle, website and digital marketing assessments, a collection of business guidance materials, and a smartphone application for customer billing and travel expense tracking. This holistic approach gives small business owners and self-employed professionals access to expert financial guidance without the variable expenses often found with conventional accounting firms.

Advantages and Disadvantages of Being a Sole Trader

Advantages

• Simple and quick to set up
• Complete control over your business
• Less paperwork compared to limited companies
• Greater privacy (no public filing of accounts)
• Lower accounting costs
• Flexible structure
• Easy to change your business structure later

Disadvantages

• Unlimited liability for business debts
• Potentially higher tax rates compared to limited companies
• May appear less established to some clients
• Limited options for raising business finance
• No separation between personal and business assets
• Full responsibility for all business decisions

Changing Your Business Structure

As your business grows, you might consider changing from a sole trader to a limited company. This transition often makes sense when:

• Your profits increase significantly
• You need more liability protection
• You want to appear more established
• You plan to seek external investment
• You want to sell your business in the future

The process involves:

1. Forming a limited company with Companies House
2. Informing HMRC of your change in status
3. Setting up new accounting systems
4. Transferring assets from your sole trader business

Consult an accountant before making this change to understand the tax implications and required paperwork.

Conclusion

Registering as a sole trader offers a straightforward path to starting a business with minimal administrative burden. The process involves registering for Self Assessment with HMRC, keeping accurate records, and fulfilling your tax obligations.

While the sole trader structure provides simplicity and flexibility, it also carries unlimited liability risk. Consider your business needs, growth plans, and risk tolerance when deciding if this structure suits your circumstances.

Remember to register by October 5 in your business’s second tax year, maintain good financial records, and consider using accounting software to manage your finances efficiently.

Your business structure isn’t permanent. Many successful businesses start as sole traders and later convert to limited companies as they grow and their requirements change.

For personalized advice on your specific situation, consider consulting with an accountant who specializes in small business taxation.

Useful Government Resources

• Register for Self Assessment as a sole trader
• Check if you need to send a Self Assessment tax return
• Set up as a sole trader: step by step
• Working for yourself
• HMRC tools and calculators
• Help online with Self Assessment
• Cyber security advice for self-employed and sole traders

Ready to explore alternative business structures?
While operating as a sole trader offers simplicity and quick setup as outlined in this guide, some entrepreneurs may benefit from greater liability protection and tax advantages. If you’re considering scaling your business or seeking more formal separation between personal and business finances, our article “How to Open a Limited Company in the UK: A Step-by-Step Guide” provides a comprehensive walkthrough of the incorporation process, helping you understand the key differences and determine if transitioning to a limited company structure is right for your business journey.