Go Limited - Set Up Sole Trader: Everything You Need to Know to Get Started
Go Limited - Set Up Sole Trader: Everything You Need to Know to Get Started
There’s nothing quite like owning your own business. Ask any business owner in the UK, and they’ll tell you it’s freeing and flexible, and really puts you in control of your career. But, before you’re able to jump into being a business owner, you’ll need to set one up, and this means deciding how to structure it. For many entrepreneurs, freelancers and side hustlers, setting up as a sole trader is the simplest and most cost-effective way to get going.
At Go Limited, we know that setting up as a sole trader is relatively easy, but we also know it can be daunting for first timers. Below, we’ve taken a look at everything you need to know about becoming a sole trader in the UK.
There’s nothing quite like owning your own business. Ask any business owner in the UK, and they’ll tell you it’s freeing and flexible, and really puts you in control of your career. But, before you’re able to jump into being a business owner, you’ll need to set one up, and this means deciding how to structure it. For many entrepreneurs, freelancers and side hustlers, setting up as a sole trader is the simplest and most cost-effective way to get going.
At Go Limited, we know that setting up as a sole trader is relatively easy, but we also know it can be daunting for first timers. Below, we’ve taken a look at everything you need to know about becoming a sole trader in the UK.
Set Up Sole Trader: Step-by-Step Guide to Becoming a Sole Trader
- Decide if Being a Sole Trader is Right for You - Before you dive in and start the process of setting up as a sole trader, think carefully about whether the sole trader route fits your business goals. Remember, you’re personally liable for debts and legal claims, and you have to pay income tax on all of your profits via a Self-Assessment Tax Return. This is all straightforward, but it is something to consider. If you plan to scale and take on partners or investment, a limited company might be better long-term. But, for those starting small and working alone, being a sole trader tends to be a good starting point.
- Choose a Business Name - As a sole trader, you can trade under your own name or create a business name. You have the freedom to be creative, but there are limitations. For example, you can’t include terms like “Ltd” or “limited,” because you’re not a limited company. You also can’t name your business anything misleading. You should check the name isn’t already trademarked or being used by another business.
- Register with HMRC as Self-Employed - To set up as a sole trader, you need to register with HMRC as self-employed. If you earned more than £1,000 from self-employment during the tax year, you need to be registered as self-employed to pay tax on your earnings. This involves creating a Government Gateway account, registering online and waiting for your Unique Taxpayer Reference (UTR) to arrive. This usually arrives within 10 working days, and then you’re good to go.
- Get to Know Your Tax and National Insurance Responsibilities - As a sole trader, you need to pay income tax and National Insurance on your earnings. This means filing an annual Self-Assessment Tax Return, paying tax on everything you own above your personal allowance - as of 2025, this stands at £12,570 - and paying National Insurance on profits about the threshold.
- Open a Business Bank Account - Though it’s not mandatory, opening a separate business bank account is a good idea as a sole trader. This doesn’t just make it easier to keep track of how much you’re being paid, but it simplifies bookkeeping, tracks expenses and looks more professional to clients.
- Keep Records and Stay Organised - It goes without saying, but you need to be organised if you want to run a successful business. As a sole trader, you need to keep records regarding invoices and your income, expenses and receipts, bank statements and tax documents. You should keep these for at least five years after the submission deadline of the relevant tax year. This ensures you have the documents you need if HMRC conduct an investigation.
- Check for Insurance and Licences - Not all sole traders need insurance, but many do. Depending on your industry, you may need public liability insurance, professional indemnity insurance and employers’ liability insurance, as well as sector-specific licences or registrations.
The Benefits of Setting Up as a Sole Trader
There are a number of advantages of setting up as a sole trader, which is why there’s over 3 million set up in the UK.
- Simplicity - One of the main benefits of sole trading is how easy it is to get started. There’s no Companies House registration, very few admin tasks and straightforward tax setup. You can get set up and hit the ground running easily, without having to dedicate too much time to prep work.
- Full Control - As a sole trader, you have complete ownership of the business, including all decisions and all profits. There are no shareholders or directors to consult. You can run the business in a way that works for you, whatever that may look like.
- Lower Costs - There are very few costs that come with setting up as a sole trader. There’s no company formation fees, no corporate tax filings and minimal legal overheads. This is why it’s a route that many new contractors and side hustlers take, as you don’t need much to get started.
- Privacy - There’s a certain level of privacy that comes with being a sole trader, as you don’t have to list your personal or business details on Companies House. This offers more privacy compared to limited company directors, who do need to share a fair amount of information.
- Flexible - When you’re a sole trader, you have the flexibility to be as adaptable as you're comfortable being. You can operate in any industry, change your business model easily, or decide to incorporate later as a limited company if you grow. You’re in the driving seat.
Who Can Become a Sole Trader in the UK?
Most people can become a sole trader in the UK, there’s not even a minimum age. But, you do need to be a resident in the UK or starting a business here to get everything organised. You’ll find sole traders in a number of industries, including tradespeople, freelancers, creators and side hustlers. Everyone from Etsy shop owners to decorators can be sole traders.
Common Pitfalls to Avoid When You’re Setting Up as a Sole Trader
- Not Registering on Time - You can register as a sole trader at any time, but you do need to be aware of HMRC deadlines. If you don’t register in time to pay the tax you owe, you could be faced with penalties and backdated tax. This is why a lot of sole traders register before getting started.
- Not Setting Tax Aside - Unless PAYE employees, tax and National Insurance isn’t automatically deducted from your earnings. This means you need to budget for them yourself. Instead of struggling to cover the cost at the end of the tax year with payment deadlines looming, put money aside every time you’re paid.
- Keeping Poor Records - Without good records, your tax return could be inaccurate, or it could trigger an HMRC investigation. It’s important to keep up to date, accurate records throughout the year of everything you earn and everything you spend.
- Mixing Personal and Business Finances - Though there’s nothing saying you can’t mix your business and personal finances as a sole trader, it’s best to keep things separate. Keeping them together makes accounting a nightmare and can create problems if you're ever audited.
- Ignoring Business Development - Many sole traders forget to invest time in marketing, networking or upskilling. Just because you’re starting out as a sole trader now, doesn’t mean you can’t grow into a limited company at a later date. Your business will only grow if you do.
For anyone looking to start a small or solo business, becoming a sole trader is often the right first step. It’s a flexible way to approach business, and gets you up and running quickly. As long as you understand your tax obligations, which Go Limited can help you with, and keep detailed records, you’ll be growing your business in no time.
FAQ About Sole Traders
General Questions
What is a sole trader?
A sole trader is an individual who runs a business on their own and is personally responsible for its debts. It’s the simplest business structure in the UK.
Is a sole trader the same as self-employed?
Yes, being a sole trader means you are self-employed, but not all self-employed people are sole traders (some may work through limited companies).
What are the advantages of being a sole trader?
Lower setup costs, more control, simple tax reporting, and fewer regulations compared to limited companies.
What are the disadvantages?
You have unlimited liability, meaning your personal assets are at risk if your business gets into debt.
How is a sole trader taxed?
Sole traders pay Income Tax and National Insurance on their business profits via Self Assessment.
Setting Up as a Sole Trader
How do I register as a sole trader in the UK?
You register with HMRC online for Self Assessment and declare that you’re a sole trader.
When should I register as a sole trader?
You should register by 5 October after the end of the tax year in which you started trading.
Can I be employed and a sole trader at the same time?
Yes, you can work as an employee and run a sole trader business simultaneously.
Can I use my home or rental address to register?
Yes, but be aware your address may be publicly visible unless you use a business address service.
Do I need a business bank account?
Not legally, but it’s recommended to separate personal and business finances.
Running the Business
Can a sole trader employ someone?
Yes, sole traders can hire staff. You’ll need to register as an employer with HMRC.
Can I use a trading name as a sole trader?
Yes. You can trade under your name or a business name, but it must not be misleading or already registered.
Can I have more than one business as a sole trader?
Yes, you can run multiple activities under one sole trader registration.
How do I invoice as a sole trader?
Include your name/trading name, address, contact info, invoice number, date, description, and totals.
Tax and Expenses
Do sole traders pay VAT?
Only if your turnover exceeds the VAT threshold (currently £90,000). You can voluntarily register too.
What expenses can I claim as a sole trader?
Common expenses include office supplies, travel, a portion of home bills (if you work from home), phone costs, and business equipment.
Can I claim for a car or mileage?
Yes, you can claim business mileage or a proportion of vehicle costs if used for business.
Do sole traders pay Corporation Tax?
No. Only limited companies pay Corporation Tax. Sole traders pay Income Tax.
Changing Business Structure
Can I change from a sole trader to a limited company?
Yes, this is common as businesses grow. You’ll need to register with Companies House and notify HMRC.
Can I go from a limited company back to being a sole trader?
Yes, but you’ll need to officially close your company first.
Legal and Compliance
Do sole traders need to register with Companies House?
No. Sole traders register with HMRC only.
Do I need business insurance as a sole trader?
It depends on your industry, but public liability insurance is recommended. Employers’ liability insurance is a legal requirement if you have staff.
Does Making Tax Digital apply to sole traders?
Yes, if you’re VAT registered. It will eventually apply to all Self Assessment filers from April 2026.
Any Other Questions
Can I claim tax back for training or courses?
Yes, if the training is directly related to your current trade or profession and therefore can be part of your expenses.
Does IR35 apply to sole traders?
No. IR35 rules apply to limited company contractors, not sole traders.
How do I close my sole trader business?
You must inform HMRC and complete a final Self Assessment tax return.
Important:
Please note: Any rates and thresholds mentioned in this article are correct at the time of publishing and may be subject to change.
When choosing an accountant, look for one with proven experience and expertise in the contracting sector, particularly around areas like IR35, limited company tax matters and off-payroll working. Formal qualifications are important, but relevant hands-on knowledge matters just as much — especially in a complex and fast-changing landscape like this.
