Simple Sole Trader Setup Guide
How to Simplify Sole Trader Setup in the UK?
There’s something uniquely appealing about being a sole trader; being a business owner and having the freedom to choose your clients. It’s something that a lot of workers are opting for, embracing the benefits that come with being your own boss. But, before you jump head first into freelancing or contracting, you need to register as a sole trader.
At Go Limited, we’re often asked about how to become a sole trader, and there seems to be a misconception that registering is a huge undertaking. But, as any sole trader will tell you, the process is actually very simple. Below, we’ve taken a look at sole trader setup in the UK and simplified everything, providing the information you need to start a new self-employed career path.
How to Register as a Sole Trader in the UK?
There are a lot of ways to approach employment in the UK, but self-employment is on the rise. This has led to a growing number of people registering as a sole trader, working a freelancer on the side or even becoming a full-time contractor. Many people mistakenly believe that becoming a sole trader in the UK is complicated, time-consuming and is not necesarrily worth it in terms of admin, but this is not true. In reality, setting up as a sole trader is a straightforward process that doesn't take long, and it's much easier than many people think. The pay off in terms of freedom, flexibility and more control in your career is there.
It's important to know that setting up as a sole trader in the UK involves registering with HM Revenue and Customs (HMRC) and informing them of your business plans. By following the step-by-step guide below, you’ll find turning yourself into a sole trader to be a quick and easy task, one that you’ll wonder why you didn’t do sooner.
Step-by-Step Guide to Registering as a Sole Trader
Choose a Business Name
There are a lot of sole traders out there, so you need to choose a business name that separates you from everyone else. You can either use your own name, as many sole traders do, or choose a business or brand name to operate under. The name shouldn’t be misleading or similar to an existing trademark, and it should showcase you as a completely unique contractor. There are some words you can’t use in a sole trader business name - for example, you can’t imply that you’re a limited company when you’re not - so that’s something to bear in mind. You can be as creative as you want. After all, you’re the boss.
Register with HMRC
To officially become a sole trader, you need to register with HMRC for self-assessment, which will enable you to handle the tax side of things. This can be done online via the HMRC website or by post, though online tends to be considerably quicker. You'll need to create a Government Gateway account if you don’t already have one but, again, that can all be done online.
Choose Your Accounting Period
As a sole trader, you’re responsible for handling your own finances and accounts. To do so, you will need to decide on your accounting period for tax purposes. A lot of sole traders choose the financial year - starting on 6th April and running for 12 months - to keep things simple, but you can choose another period if there’s one that works better for you.
Get Your Unique Taxpayer Reference (UTR)
After registering as a sole trader in the UK, HMRC will send you a Unique Taxpayer Reference (UTR) number, which you’ll need to make a note of. This is a 10 digit number that HMRC uses to identify your business for tax purposes.
Start Keeping Financial Records - One of the most important parts of being a sole trader is keeping accurate financial records, detailing everything that goes in and out of your business, including all income and expenses. You’ll need this information to complete your self-assessment tax return at the end of each year.
Even once you’ve registered as a sole trader in the UK, you can’t tick the task off of your ‘to do’ list, as being a sole trader has a whole host of ongoing responsibilities. You’ll need to pay Income Tax, National Insurance and submit a self-assessment tax return.
Pay Income Tax and National Insurance Contributions (NICs)
As a sole trader, you are responsible for paying both Income Tax and National Insurance on all of your earnings. Your income tax is calculated based on your profits, minus any business-related expenses that you’ve had that year.
Submit Your Self-Assessment Tax Return - When you’re employed and paid via PAYE, tax is deducted before you receive your earnings. But, as a sole trader, you’ll need to submit a self-assessment tax return instead. You will need to submit a tax return every year by 31st January, which will calculate how much tax you owe based on your income.
What to Remember When You’re Registering as a Sole Trader in the UK?
Though the process of registering as a sole trader is relatively straightforward, there are a few key things to remember. Keeping these points in mind will make the day-to-day process of being a sole trader lot easier.
Keep Your Personal and Business Finances Separate
Although opening a separate business bank account is not a legal requirement, it is highly recommended. Doing so helps you manage your finances more effectively and keeps your records organized. A dedicated business account simplifies tracking your business transactions, making it easier to monitor incoming and outgoing payments.
Consider Insurance
As a sole trader, you might want to consider taking out insurance policies, such as public liability insurance or professional indemnity insurance, depending on the nature of your business. This isn’t mandatory, but it can provide peace of mind in case of something going wrong. You don’t want to be faced with a costly legal dispute with no insurance to help cover the cost.
Understand Your Tax Responsibilities
You’ll need to file an annual self-assessment and make sure you pay your taxes on time to avoid any penalties. It’s a good idea to familiarise yourself with the ins and outs of doing so, including knowing when tax deadlines are, what receipts you need to keep for expenses, and how much you’ll need to pay.
Keep Accurate Records
Regardless of the industry that you work in, you’ll need to keep accurate records related to you being a sole trader. You are legally required to keep records of all your income and expenses, as HMRC can ask to see these as ‘proof’ of what you’ve said in your self-assessment tax return. You’ll need to retain these records for at least five years after the 31st January submission deadline.
FAQ
What is a sole trader?
A sole trader is an individual who runs and owns a business independently. This structure is ideal for those starting out, as it's simple to set up. However, the owner is personally liable for any business debts. Many choose to start as sole traders before moving to a limited company when their business grows or risk increases.
How do I register as a sole trader with HMRC?
You need to notify HMRC that you're self-employed by registering for Self Assessment and National Insurance:
Register online via the GOV.UK website.
Have your National Insurance number, personal details, and business information ready.
- Deadline: Register by 5 October after the end of the tax year in which you started trading.
- Tip: Go Limited offers guided registration support to ensure you meet all legal requirements on time.
Do I need a separate business bank account?
While not legally required, having a business bank account is highly recommended:
- Clear finances: Simplifies bookkeeping and tax returns.
- Professional image: Helps build trust with clients and suppliers.
- Credit readiness: Makes it easier to access funding in future.
Go Limited helps sole traders open the right business account quickly and compliantly.
What records must I keep as a sole trader?
You’re required to maintain:
- Detailed income and expense logs.
- Invoices sent and receipts for expenses.
- Business bank statements.
These records are essential for your Self Assessment and must be kept for at least 5 years.
Need help staying compliant? Go Limited provides bookkeeping solutions tailored for sole traders.
What taxes do I pay as a sole trader?
You're responsible for:
- Income Tax: On profits above your personal allowance.
- National Insurance:
Class 2: Flat rate if profits exceed the small profits threshold.
Class 4: A percentage of profits.
With Go Limited, you can access tax estimation tools and optional accounting support to avoid surprises.
How can I estimate and plan for my taxes?
Plan ahead by:
- Saving regularly: Put aside 10–20% of your income for tax.
- Using HMRC tools: To estimate tax and NICs.
- Getting advice: An accountant can help reduce liability and avoid penalties.
What key deadlines should I know?
Register as a sole trader: By 5 October after the tax year ends.
- Submit tax return:
Paper: 31 October
Online: 31 January
- Pay tax:
31 January (balancing + first payment on account)
31 July (second payment on account)
Never miss a deadline – Go Limited users receive automated reminders and optional filing support.
Can I employ staff as a sole trader?
Yes, but you must:
- Register as an employer with HMRC.
- Run PAYE to deduct tax and NIC from wages.
- Offer a workplace pension if eligible.
Go Limited partners can assist with setting up payroll systems and pension compliance.
What are the advantages of being a sole trader?
- Full control over decisions.
- Low-cost setup and minimal admin.
- Direct access to profits.
Many sole traders start here before upgrading to a limited company for better protection – Go Limited can help you decide when to make the switch.
What are the disadvantages of being a sole trader?
- Unlimited liability: You’re personally responsible for business debts.
- Funding difficulties: Investors often prefer limited companies.
- No separation: You carry the full burden of the business.
This Go Limited guide simplifies how to register as a sole trader in the UK, covering each step - from choosing a business name and registering with HMRC to managing taxes and keeping records.
