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Complete guide: How to register as a sole trader in the UK in 2023

by | Nov 10, 2023

Impact Brixton is built around sole traders. We exist to support and empower people into starting their own business, helping them to skip the 9-5, diversify their income streams and live their dream. 

But when we say “start a business”, often people immediately start imagining having to rent an office, hire a team, find an accountant, pour their budget into marketing, and fill in tons of scary government paperwork. 

But what if we told you that you don’t need to do any of those things? 

When you set up a business as a sole trader, all you need is an idea. You don’t need to register with Companies House, you don’t need to hire anyone, and you most definitely don’t need to rent an office. And if you work on referrals, you won’t need to do any marketing either! 

There are an incredible 3.1 million sole traders in the UK. That’s 56% of the total UK private sector business population! So let’s find out why it’s such a popular choice, and how you get set up as a sole trader in the UK In 2023. 

What is a sole trader?

Or, you might be asking, what is a sole proprietorship? As they’re both the same thing! A sole trader is a type of business structure where an individual runs and owns the business. So when someone says they’re a sole trader, it means that they are a self-employed person who is the sole owner of their business. 

Some sole trader examples include builders, plumbers, electricians, painters and decorators, taxi drivers and window cleaners. Sole traders can also include self-employed copywriters, designers and other creative staff. 

There are tons of advantages to being a sole trader. Sole traders have complete control over the operations of their business, and they keep all the profits after tax. They don’t have to register with Companies House, and sole traders don’t pay corporation tax, either. So it’s a great option for people looking for a way to set up their business fast!

However, the disadvantage to being a sole trader is that sole traders are also personally responsible for any debts or liabilities that their business incurs. So as with any business venture, it’s important to ensure that you’re earning enough money to cover your overheads, and not taking on projects that could risk putting you out of pocket! 

How do you set up as a sole trader in the UK? 

The great news is that sole trader set up is pretty straightforward in the UK – and there’s way less paperwork involved than when you set up a limited company or partnership. Here’s your step-by-step guide to setting up as a sole trader in the UK in 2023.

1. Choose a Business Name – Or Don’t!

As with any business venture, the first thing you’ll need to do is decide how you want to be known to your clients. The great thing about being a sole trader is that you don’t have to choose a business name at all if you don’t want to! You’re perfectly free just to use your name, offering your services on a personal basis. 

If you do want to choose a name for your business, that’s also fine. You’ll just need to use the company name availability checker to make sure that the name is available for you to use. In the UK, the law states that no two companies can have the same name. So it’s definitely worth taking the time to check to avoid problems later! 

If you’re looking for an affordable way to boost your business’s reputation as a sole trader, consider taking out a Virtual Office. From just 0.41p per day, you can get a professional address in a desirable location to use as your business address, helping to give your clients the impression that your operation is credible and professional.   

2. Register with HM Revenue & Customs (HMRC)

A big benefit of setting up as a sole trader is that you don’t need to register your business with Companies House. This saves a ton of time and paperwork, and you also don’t have to pay the registration fee. Hooray! 

However – and this is really important – you still need to register with HM Revenue & Customs (HMRC). This is so that you can pay tax by submitting an annual self assessment tax return to HMRC. 

The good news is that registering with HMRC as a sole trader is relatively easy. You just need to head to this page on the Government website, and fill in your personal information, National Insurance number, business name, and business start date. You may also need to provide additional information about your sources of income, such as details about any other employment you have.

And don’t panic when you get to the page on VAT registration! You only need to register for VAT (Value Added Tax) if your business turnover is expected to exceed the VAT threshold. In the UK, the VAT threshold for 2023 is £85,000. 

Once your registration with HMRC is complete, you’ll receive your Unique Taxpayer Reference (UTR). 

You’ll also be given the option to set up an online account with HMRC. We recommend you do, as this is the easiest way to manage your tax affairs, submit returns, and keep track of payments. We see a lot of freelancers struggling to keep track of their tax returns and how much tax they’ve paid. If you’ve got it all handily stored in your HMRC online account, you’ll never need to worry!

And that’s it! You’re all set up as a sole trader. The next thing you need to do is make sure that you’re aware of what taxes you need to pay, and how you need to pay them. 

How do sole trader tax payments work?

The great news is there’s no specific sole trader tax – and sole traders don’t pay corporation tax, either. When it comes to sole trader advantages, this one is right up there! 

But that doesn’t mean that sole traders don’t have to pay any tax. Sole traders are required to send a Self Assessment tax return to HMRC every year – and it’s really important you send it in on time. 

Sole trader tax free allowance in the UK in 2023 is £12,570. That means that you’ll only pay tax on any income you earn after that amount during the tax year. The sole trader tax year is the same as it is for all workers – a UK tax year runs from 6 April to the following 5 April.

You can make your life easy by keeping records of your income and expenses throughout the year, because you’ll need to include all of these in a self assessment tax return.

If this is the first time you’ve filled in a self assessment tax return, you might be a little daunted. But don’t worry! It’s relatively straightforward, as long as you have all of the information you need. Check out our step-by-step guide to filling in a self assessment tax return. 

Do I need to take out insurance as a sole trader?

Sole trader public liability insurance is definitely a good idea. Public liability insurance is a safety net for businesses and freelancers, covering costs if you accidentally cause injury or property damage during your business activities. It protects against legal fees and compensation, offering peace of mind. 

You might also want to consider professional indemnity insurance, business interruption insurance and cyber insurance. You can read more about these options on our blog!

Conclusion

Registering as a sole trader is a quick and easy process. You don’t need to register with Companies House, and you have complete control over your business operations. The trick to being a successful sole trader is making sure that you keep really good records of your taxable income and allowable expenses. That will make doing your annual tax return a breeze!

If you’re weighing up the advantages and disadvantages of setting up as a sole trader, check out our blog post. It clearly states the benefits and drawbacks of becoming a sole trader, as well as pointing out the alternatives.