Setting up as a sole trader: frequently asked questions

Setting up as a sole trader can be a bit confusing (see our step-by-step guide here if you haven't done so already), and there are a number of things that you need to look out for.

How do I know if I need to register?

  • You earned more than £1,000 from self-employment (called “the trading allowance”) in the past tax year;
  • You need to prove that you’re self-employed, for example to claim Tax-Free Childcare;
  • Or you want to make voluntary Class 2 National Insurance payments so you can qualify for benefits.

Is self-employed the same as sole trader?

In short, yes:

  • "Self-employed" means someone who does not work for an employer and who doesn't pay tax through PAYE.
  • "Sole trader" is just a way of formally describing your business structure.

Note: you’re likely not a sole trader if you sell some unwanted items occasionally or you don’t plan to make a profit. For example, selling your old laptop on eBay is not considered trading, but buying and selling regularly on the same website might be.

If I own a limited company, am I self-employed?

No.

If you own a limited company, you’re actually both an owner ("shareholder") and employee of your own company ("director").

While you don’t need to register as a self-employed in this situation, you will have to submit a tax return (all directors do) and also a separate corporate tax return for your business.

Can I be both employed and self-employed?

Yes.

For example: Nadia works for Starbucks in the morning ("employee") and is an Uber driver in the evenings ("self-employed"). She will have to register for Self Assessment and file a tax return for her Uber income.

When do I need to register?

According to HMRC, you should register as soon as you start your self-employment. The “hard deadline” is 5th October of your second tax year - if you don’t register by then, you will be fined.

What happens if I miss the deadline?

You will likely be fined - depending on how late you are and how large your tax bill would be. See this list of fines and penalties for more information.

Can I register in advance?

No.

If you are not starting out in self-employment within 28 days you cannot register yet.

Do I need to register every year?

No.

However, if you have to send a tax return but did not send one last year, you still need to re-register for Self Assessment and Class 2 National Insurance.

I do not know my National Insurance number. How do I get one?

You can find your National Insurance number (NINO) on previous payslips or any official correspondence from HMRC. It's made of two prefix letters, six digits, and one suffix letter. For example: AB 12 34 56 C.

How should I name my sole trader business?

Contrary to what you might have heard, your sole trader business's name does not need to be your own name. You can trade under your own name if you want, or you can choose another name.

Do I also need to register for VAT?

Yes, if:

  • Your turnover is over £85,000, or
  • You sell to other VAT-registered businesses and want to reclaim the VAT.

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