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Setting up as a sole trader: frequent questions

  • 3 min read
  • Last updated 28 Mar 2024

We know that setting up as a sole trader can be confusing, that’s why we’re answering all of your questions. 

No need to thank us just yet! 😜

The self-employed brain

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 that you’re self-employed, i.e to claim Tax-Free Childcare
  • You want to make voluntary National Insurance contributions so you can qualify for benefits and/or full state pension

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?

You can register after you’ve earned your first £1,000 from self-employment. The ‘hard deadline’ 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?

No.

If you have to send a tax return but did not send one last year, you need to re-register for Self Assessment.

If, on the other hand, you’re looking to stop being a sole trader, you need to let HMRC know – otherwise, they’ll still expect a tax return. Find out more about how to stop being self-employed here.

7. How should I name my sole trader business?

You can 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.

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.

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