Sole Trader FAQs

Becoming a Sole Trader is the simplest way to get your new business off the ground. You can start trading immediately, subject to any industry specific licences or insurances you might be required to have.

As a Sole Trader, you will have complete control over your business and its finances. You can adapt quickly to any changes in your business, without having to concern yourself with a great deal of officialdom.

If you run your business as a Sole Trader, no distinction is made between your personal and business finances. It is therefore crucially important for you to realise that should anything go wrong, you will be personally liable for any business debts.

Note – this not the case if you were work via the limited company route, so it is worth spending some time to consider what business structure is best for you.

You must register with HMRC - you can do this is online by using this link
https://www.gov.uk/new-business-register-for-tax.

If you ask an accountant to register on your behalf, you will be required to complete an HMRC form, 64-8. This will enable your accountant to liaise with HMRC and act for you as your appointed agent.

It is not essential but it is very advisable to have a separate business bank account. This way it will be easy for you to transparently highlight and record all of your business transactions.

Keeping your business affairs separate from your personal finances will ultimately save you a lot of administration time and effort.

You simply do this by transferring money from your business account to your personal bank account.

Note – it is crucial that you leave sufficient cash in your business to pay your taxes etc. Please seek guidance and advice on this issue from a qualified accountant.

When you register as a Sole Trader, you are also registering to submit an annual self-assessment tax return. HMRC will provide you with a UTR number for this purpose.

Your tax return will confirm the gross income you have received in the tax year and will also document your expenditure. When the income total is deducted from the expenditure, plus any other allowances you are entitled to, you are left with a net profit figure and this is the amount you are then taxed on.

Your personal tax year runs between 06 April–05 April every year. Your tax return and your tax payment must be submitted to HMRC no later than 31 January every year.

Yes, you will be required to pay National Insurance contributions. These are the current 2024/25 rates:

Most Sole Traders pay National Insurance contributions via their annual self assessment tax returns.

You do not have to register for VAT if your business turnover is below the current threshold which is £90,000.

Regardless of whether they meet the turnover threshold or not, many Sole Traders will register for VAT as it will allow them to reclaim VAT on items purchased by their business.  VAT registration can also allow, where relevant, entry into the flat rate VAT scheme and the benefits attached to it.

It is crucial that you take advice about VAT registration from a qualified accountant.