What are sole traders?
When you register as a sole trader, you run your own business as an individual and are self-employed. You can keep all your business’s profits after you’ve paid tax on them, but you’re also personally responsible for any losses your business makes. Sole trader registration means you must follow specific rules for running and naming your business.
How much does registering as a sole trader in the UK cost?
There's no set cost to register as a sole trader in the UK — you can do it free through HMRC. However, the process can be time-consuming, and you’ll need to ensure all the information you provide is correct. At Mint Formations, we can handle the registration process for you and ensure everything goes smoothly for a one-off fee of £29.
What are your responsibilities as a sole trader?
As a sole trader, you’ll 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 — use HMRC’s calculator to help you budget for this.
- Apply for a National Insurance number if you’re moving to the UK to set up a business.
How should I name my sole trader business?
When you register as a sole trader, you can trade under your own name or choose another name for your business. You must include your name and business name (if you have one) on official paperwork, such as invoices and letters.
Sole trader names must not:
- Include the words “limited”, “Ltd”, “limited liability partnership”, “LLP”, “public limited company” or “plc”
- Be offensive
- Be the same as an existing trademark.
- Contain a “sensitive” word or expression or suggest a connection with government or local authorities unless you get permission.
What is the difference between a sole trader and a limited company?
There are some key differences between operating as a sole trader and running a limited company, and the one that will be best suited to you will depend on how you plan to run your business and how quickly you want to grow. Our blog post outlines the differences between a sole trader and a limited company, along with the advantages and disadvantages of each.
As a sole trader, can I register for VAT?
Yes. After registering as a sole trader, you must register for VAT if your turnover exceeds £90,000 per year. You can register voluntarily if it suits your business; for example, if you sell to other VAT-registered companies and want to reclaim VAT. We can help you register for VAT online for just £29 +VAT.
How long does sole trader registration take?
Filling in our simple online application form takes just minutes, but receiving your UTR from HMRC can take approximately four to six weeks.
What do I receive from HMRC when I register as a sole trader?
When you buy our Sole Trader Registration package, we will register you as self-employed with HMRC. HMRC will then send you your Unique Tax Reference (UTR).
Can I start trading before I receive my UTR?
Yes, you can, but you must complete your sole trader registration within three months of the date you started trading. You can start trading as soon as you submit your application, allowing you to hit the ground running while knowing that your company formation admin is all taken care of by us.
Are there any annual fees?
There is no annual fee for our Sole Trader Registration package.
Do I need to register as a sole trader straight away?
While you’re not required to register as a sole trader straight away, we would highly recommend it. If you choose to wait to register, you must do it within three months of your launch date or by October 5th of the second tax year since your business started trading. Failing to register by that time may result in penalties from HMRC.
How do sole traders pay tax?
Sole traders pay income tax on their business profits through self-assessment tax returns. Every sole trader is required to complete a tax return annually, which details their income and expenses. The deadlines for tax returns are:
- October 31st for paper returns
- January 31st for online returns.
Sole traders are also required to pay National Insurance contributions (NICs). Class 2 NICs are a fixed weekly amount, while Class 4 NICs are calculated as a percentage of your annual taxable profits. The exact amounts may vary, so check the current rates on the UK Government's website.
What expenses can you claim back as a sole trader?
As a sole trader, you can claim back allowable business expenses to reduce your taxable income. HMRC’s list of allowable expenses includes the following:
- Office costs
- Travel expenses
- Stock and materials
- Marketing and advertising
- Subscriptions and memberships.
You must keep accurate records of any of your business expenses. If you are unsure whether an expense is allowable, please check with HMRC.
