If youâre a sole trader, you run your own business as an individual and are self-employed.
You can keep all your businessâs profits after youâve paid tax on them. Youâre personally responsible for any losses your business makes. You must also follow certain rules on running and naming your business.
When you need to set up as a sole trader
You need to set up as a sole trader if any of the following apply:
- you earned more than ÂŁ1,000 from self-employment between 6 April 2020 and 5 April 2021
- you need to prove youâre self-employed, for example to claim Tax-Free Childcare
- you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits
How to set up as a sole trader
To set up as a sole trader, you need to tell HMRC that you pay tax through Self Assessment. Youâll need to file a tax return every year.
Your responsibilities
Youâll need to:
- keep records of your businessâs sales and expenses
- send a Self Assessment tax return every year
- pay Income Tax on your profits and Class 2 and Class 4 National Insurance – use HMRCâs calculator to help you budget for this
Youâll need to apply for a National Insurance number if youâre moving to the UK to set up a business.
VAT
You must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.
Working in construction industry
Register with HMRC for the Construction Industry Scheme (CIS) if youâre working in the construction industry as a subcontractor or contractor.
Naming your business
You can trade under your own name, or you can choose another name for your business. You do not need to register your name.
You must include your name and business name (if you have one) on official paperwork, for example invoices and letters.
Business names
Sole trader names must not:
- include âlimitedâ, âLtdâ, âlimited liability partnershipâ, âLLPâ, âpublic limited companyâ or âplcâ
- be offensive
- be the same as an existing trade mark
Your name also cannot contain a âsensitiveâ word or expression, or suggest a connection with government or local authorities, unless you get permission.
ExampleTo use âAccreditedâ in your companyâs name, you need permission from the Department for Business, Energy and Industrial Strategy (BEIS).
Check which words you need permission to use, and who from.
Youâll need to register your name as a trade mark if you want to stop people from trading under your business name.
Help and support
You can sign up for business support emails from HMRC to help you if youâre working for yourself.
If your business has been affected by coronavirus (COVID-19), you may be able to claim a grant through the Self-Employment Income Support Scheme.