Becoming a sole trader is one of the easiest and most popular ways to start a business in the UK. It gives you the freedom to run your business your way, enjoy the perks of being self-employed, and manage your own finances. But when do you need to register as a sole trader, and how do you go about it? In this guide, we’ll walk you through the steps to register as a sole trader, explain what’s required, and highlight key things to think about before taking the plunge into self-employment.
When to register as a sole trader
Knowing when to register as a sole trader is essential for staying within the UK tax laws and avoiding penalties. Here are the key signals it’s time to take action:
1. When your self-employment income exceeds £1,000 in a tax year
If you earn more than £1,000 from self-employment during a tax year, you’re required by law to register as a sole trader with HMRC. This threshold is part of the UK’s trading allowance. This allows individuals to earn a small amount from casual or part-time work without registering or paying tax.
2. When you officially start your business
If you decide to launch your business to earn income, it’s a good idea to register as a sole trader as soon as possible. This allows you to maintain your records from the outset, making sure you stay within the law as well as easier tax reporting.
💡Editor's insight: “Make a note of the date you start trading. One of the first things you will need to do when you register for self-assessment is add this date. This will determine when your accounting period begins. This will make sure you are on time to submit your tax return.”
3. When your business becomes your primary source of income
If your sole trader business becomes your main source of income, you must register with HMRC to ensure you pay the correct taxes. This applies to individuals who go from employment to self-employment. Or for those who take a side hustle full-time.
4. When you want to claim business expenses
One of the benefits of registering as a sole trader is the ability to claim business-related expenses. This helps to reduce your taxable income. These can include:
Office supplies
Travel costs
Marketing expenses
Equipment or tools
Without registering, you won’t be able to claim these deductions and your tax bill could increase.
5. When you register for VAT or hire employees
If your business turnover exceeds £90,000 in 12 months, you’ll need to register for VAT. At this point, you will have to register as a sole trader by law. If you plan to hire employees or subcontractors, you’ll need to make sure you’re registered with HMRC. This will help you to manage PAYE and other employer obligations.
6. When your side hustle grows into a business
If you’ve started earning money from a side project, it’s important to record your income. Once your side hustle goes over the £1,000 trading allowance, this will become more of a structured business. You'll then need to register as a sole trader.
💡Editor's insight: “I find that a lot of people selling handmade crafts think they don’t need to register as a sole trader. But if this grows into a regular online store and you are earning over £1000, it’s time to register. If you don’t, you could be at risk of penalties for failing to declare your business.”
7. When you want to establish credibility
Registering as a sole trader can help you give your business credibility, making it easier to attract clients and suppliers. It also allows you to trade under a business name (if desired) and separate your personal and professional identity.
Why is timely registration important?
Failing to register as a sole trader on time can result in penalties from HMRC. It’s recommended to register as soon as you meet any of the above conditions. This will make sure you stay on the right side of the law and avoid unnecessary stress. You must register by 5th October of the second tax year after you start trading.
What information do you need to register?
When registering as a sole trader, you’ll need to provide specific details to HMRC. Having the following information ready will help make the process easier:
Your personal details: Full name, date of birth, and National Insurance (NI) number.
Business details: Business name (optional, if different from your legal name), type of business, and start date.
Contact information: Address, phone number, and email address.
Unique Taxpayer Reference (UTR): If you’ve previously registered for self-assessment, you’ll need your UTR.
VAT registration details (if applicable): If your business turnover exceeds the VAT threshold (£90,000), you’ll need to register for VAT.
By having these accurate details ready to go, you can make sure you are registered and meet tax obligations.
How to register as a sole trader in the UK
Registering as a sole trader is a straightforward process. You can do this online through HMRC’s website. Follow these steps to complete your registration:
Step 1: Create a Government Gateway account
Visit HMRC’s website and create a Government Gateway account if you don’t already have one. This account will allow you to manage your taxes and communications with HMRC.
Step 2: Register for self-assessment
Once your Government Gateway account is active, log in and register for self-assessment as a sole trader. You’ll need to fill out an online form with your details and business information.
Step 3: Wait for confirmation
After submitting your registration, HMRC will send a confirmation letter. You will receive your Unique Taxpayer Reference (UTR) within 7-10 working days.
Step 4: Activate your self-assessment account
Use your UTR and activation code (provided by HMRC) to access your online self-assessment account. This account will be where you submit your annual tax return and manage payments.
Step 5: Begin trading
Once registered, you can start trading and keep records of your income and expenses for tax purposes.
How long does it take to register as a sole trader?
The sole trader registration process is quick, but the time it takes for your application to be fully processed may vary.
Online application submission: Complete the registration form online (this will take less than an hour.)
Processing by HMRC: After submitting your application, HMRC usually processes it within 10 working days.
Receiving your UTR: You’ll receive your UTR by post, which is necessary to access your self-assessment account.
If you need to start trading immediately, you can begin while waiting for your UTR, as long as you record all transactions and expenses.
Are there any fees?
Registering as a sole trader with HMRC is free. However, there are associated costs to consider such as:
Income tax and National Insurance contributions: As a sole trader, you’ll pay tax on your profits through self-assessment.
VAT registration (if applicable): If your turnover exceeds £90,000, you’ll need to register for VAT, which involves additional compliance costs.
Professional services: Sole traders can hire tax advisers or an accountant to make sure the accounts are accurate.
FAQs
Do sole traders need to register with Companies House?
No, sole traders do not need to register with Companies House. Unlike limited companies, sole traders are not separate legal entities from their owners, so there’s no need for a company registration.
Does a sole trader have a company registration number?
No, sole traders do not receive a company registration number. This number is only issued to limited companies and limited liability partnerships (LLPs). Sole traders operate under their legal name or a chosen business name.
Are being self employed and being a sole trader the same thing?
A sole trader is a type of business structure while being self-employed is a broader term. You can learn the ins and outs in our guide to sole traders vs. being self employed.
Do you need a memorandum and articles of association as a sole trader?
No, sole traders do not need a memorandum and articles of association. These documents are only required for limited companies.
Final thoughts
Registering as a sole trader is an essential step if you’re planning to run your own business or earn income independently. The process is straightforward, cost-effective, and allows you to start trading with minimal hassle. Whether you’re starting a small side hustle or a full-time venture, registering as a sole trader is your first step toward success.
Looking for legal support? Our small business solicitors are here to help. Get in touch today for a free quote and to see how we can help.
References
Paye for employers by gov.uk
HMRC online services by gov.uk
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.