How to set up as a sole trader/self-employed?

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Following the pandemic, an increasing number of people have chosen to go self-employed. If you start working for yourself, you’re classed as a sole trader.

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In this blog we look at the steps you need to take to set yourself up as a sole trader.

Step 1 – Check if being self-employed is right for you

Having made the decision to be your own boss, it is important to decide the best legal and taxation structure for your enterprise. The most suitable structure for you will depend on your personal situation and your future plans. The decision you make will have repercussions on the way you are taxed, your exposure to creditors and other matters.

Being a sole trader is the simplest way of trading. There are only a few formalities to trading this way, the most important of which is informing HMRC.

You are required to keep business records in order to calculate profits each year and they will form the basis of how you pay your tax and national insurance.

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It is important to understand when setting up as a sole trader that essentially YOU are the business. Meaning that any profits generated are automatically yours, but you are also legally liable to pay any debts down to your last worldly possession.

 

Step 2 – Choose a trading name

As a sole trader, you can trade under your own name, or you can choose another name for your business. You must include your name and business name (if you have one) on official paperwork, for example invoices and letters.

You can opt to register a trademark if you want to stop people from trading under your business name.

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When choosing a sole trader name, it must not:

  • include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
  • be offensive
  • be the same as an existing trademark name

Step 3 – Make sure you know what records you need to keep

You must keep all records of your business income and expenses for your self-assessment tax return if you’re self-employed. You’ll also need to keep records of your personal income.

Making Tax Digital for Income Tax

If you have a total business or property income above £10,000 per year (gross income or turnover) then from 6 April 2024, you will need to use MTD compatible software to keep records of your business expenses and profits in a digital format.

Step 4 – Register with HMRC

As a sole trader, you will need to register with HMRC and submit tax returns through Self-Assessment. You can do this by registering online.

You should register for self-assessment as soon as you can after starting your business but you will need to ensure you have registered by 5th October in your business’s second tax year otherwise you could be fined by HMRC.

Make sure you keep a record of the email address you sign up with and your Government Gateway ID as you will need this to sign in and submit your tax returns.

Trading Allowance

Because of the Trading Allowance, you won’t need to register for Self-Assessment or pay tax if your self-employed income is less than £1,000 in a tax year.

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If you are not sure whether your income will exceed the threshold, then just make sure you keep records as you go.

Step 5 – After you have registered

As soon as you register for Self-Assessment, you will automatically be issued a Unique Taxpayer Reference (UTR number) in the post. If you register online, HMRC will also post an activation code for your online account which you will receive separately.

Once you are all set up and registered for Self Assessment, you’ll need to submit tax returns each year, unless you stop trading and have informed HMRC.

Payments on account

You will need to make Payments on Account if your Self-Assessment tax bill is more than £1000.

Key dates for sole traders

There are some essential dates for sole traders to remember:

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How can Blue Spire help?

Our knowledgeable team at Blue Spire have experience in working with clients from a huge variety of different sectors from construction, retail, art, manufacturing, hospitality, and many more.

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We can advise you of the best business structure option for you as well as offer a wide range of services that are tailored to businesses that are just getting started.

If you would like to discuss your business ideas in more detail, please do not hesitate to contact us.
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