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Setting up as a sole trader: frequent questions

We know that setting up as a sole trader can be confusing, so we put together this list of answers to questions you might have.

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

  • You earned over £1,000 from self-employment in the past tax year
  • You need to prove that you’re self-employed, for example to claim Tax-Free Childcare
  • You want to make voluntary National Insurance contributions so you can qualify for benefits.

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

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
  • In short, they’re the same thing.

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

Yes.

For example: Nadia works for Starbucks in the morning and is an Uber driver in the evenings. She will have to file a tax return for her Uber income.

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

4. When do I need to register?

As soon as you start your work.

The “hard deadline” is 5th October of your second tax year.

5. Can I register in advance?

The earliest you can register is within 28 days before starting your work.

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 and Class 2 National Insurance.

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.

7. How should I name my sole trader business?

You can trade under your own name if you want, or you can choose another name.

8. Do I also need to register for VAT?

Only if:

  • Your turnover will be over £85,000 (the “VAT threshold”), or
  • You sell to other VAT-registered businesses and want to reclaim VAT.

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