All your questions on setting up as a sole trader answered

Setting up as a sole trader can feel overwhelming with all the rules, deadlines, and responsibilities to juggle. But don’t worry, we’re here to help you make sense of it all. From tax forms to deadlines, we’re answering all your questions, so you can get on with the exciting part: running your business! 🧑‍💻

1. How do I know if I need to set up as a sole trader?

Simple! You’ll need to set up as a sole trader if:

• You earned over £1,000 from self-employment in the past tax year.
• You need to prove you’re self-employed (for example, to claim Tax-Free Childcare 🧒).
• You want to make voluntary National Insurance contributions to qualify for benefits or a full state pension.

So, when should you actually get around to setting up as a sole trader? The answer is, as soon as you meet any of these criteria!

2. Is self-employed the same as sole trader?

In short, yes:

• Self-employed means that you do not work for an employer and you don’t pay tax through PAYE
• Sole trader is the formal name for your self-employed business

They’re the same thing.

3. Can I be both employed and self-employed?

Yes! You can work for an employer as well as yourself. Let’s look at a quick example:

Nadia works for Starbucks full-time as well as running her small business. Nadia is employed and self-employed. 

Her Starbucks income is taxed through PAYE before it arrives in her bank account. But she’ll have to file a tax return for her self-employed income. 📝

PS: You’ll also have to work out how much tax you owe on your self-employed income by yourself. 

See more details about being both employed and self-employed here.

4. When do I need to register as a sole trader?

You can register after you’ve earned your first £1,000 from self-employment. The ‘hard deadline’ for setting up as a sole trader is 5th October of your second tax year.

You’ll have to pay your tax bill by 31st January (if you opt to file a paper tax return, the deadline is 31st October.) 📅

If you earn less than £1,000 in the tax year, you don’t need to do a tax return.

5. Can I register in advance?

Yep, but only 28 days before you start your work (this is the limit).

6. Do I need to register every year?

Nope! Once you’re done setting up as a sole trader, you won’t need to register again. However, if you didn’t file a tax return the previous year but now need to, you will need to re-register for Self Assessment. ✍️

If you stop being a sole trader, remember to inform HMRC. Otherwise, they’ll still expect you to submit a tax return.Find out more about how to stop being self-employed here.

Find out more about how to stop being self-employed here.

7. How should I name my sole trader business?

When setting up as a sole trader, you can either trade under your own name, or you can choose another name. The choice is yours!

8. Do I also need to register for VAT?

You’ll need to register for VAT only if you meet any of the follow criteria:

• Your turnover will be over £90,000 (the “VAT threshold”)
• You sell to other VAT-registered businesses and want to reclaim VAT

Find out how to register for VAT here.

Ready to Get Started?

Setting up as a sole trader doesn’t have to be overwhelming! Once you’ve earned your first £1,000 from self-employment, you’ll know it’s time to register, with a hard deadline of 5th October in your second tax year.

Need a hand filing your tax return? Let us help! 🙋 Our accredited accountants can sort your Self Assessment in as little as 48 hours, find out more here.