How do I register as a sole trader? A step-by-step guide

Starting your own business as a sole trader is one of the simplest ways to become self-employed. It gives you complete control over your business while keeping administrative responsibilities minimal. However, registering correctly is essential to stay compliant with UK tax laws. So ‘How do I register as a sole trader?’

This guide will walk you through the entire process of registering as a sole trader, covering everything from legal requirements to tax obligations.

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What is a sole trader?

A sole trader is a self-employed individual who owns and runs a business. Unlike a limited company, a sole trader is personally responsible for all business debts and liabilities.

Pros of being a sole trader

• Easy and inexpensive to set up.
• Full control over business decisions.
• All profits (after tax) belong to you.
• Less paperwork compared to a limited company.

Cons of being a sole trader

• Unlimited liability – personal assets can be at risk.
• More challenging to raise funding.
• Responsible for handling tax and record-keeping.

When do you need to register as a sole trader?

You must register as a sole trader with HMRC if:

• You earn more than £1,000 in a tax year from self-employment.
• You need proof of self-employment (e.g., to claim Tax-Free Childcare).
• You want to pay voluntary Class 2 National Insurance to qualify for benefits.

If your income is below £1,000, you may not need to register, but doing so can still be beneficial for tax and legal reasons.

How to register as a sole trader (step-by-step)

Step 1: Decide if sole trader status is right for you

Before registering, ensure that a sole trader structure suits your business goals. If you plan to scale significantly or want financial protection, a limited company might be a better option.

Step 2: Choose a business name

As a sole trader, you can either trade under your own name or pick a business name. However, you must follow these rules:

• The name must not include “Ltd,” “LLP,” or other misleading terms.
• It must not be offensive or trademarked by another company.
• If using a trading name, you must include it on invoices and official paperwork.

To check name availability, use the Companies House Name Availability Checker.

Step 3: Gather the required information

Before you start the registration process, make sure you have:

• National Insurance (NI) number
• Full name and date of birth
• Postal address and email
• Business name (if different from your own)
• Nature of your business (what you do)
• Start date of trading

Step 4: Register for self-assessment with HMRC

You can register online via HMRC’s website. If you prefer, you can also register by:

• Calling HMRC at 0300 200 3310
• Filling in a paper form (CWF1) and posting it

Step 5: Receive your unique taxpayer reference (UTR)

Once registered, HMRC will send you a Unique Taxpayer Reference (UTR). This 10-digit number is required for filing your Self Assessment tax return each year.

Step 6: Set up record-keeping and accounting

As a sole trader, you must track your income and expenses for tax purposes. Some essential practices include:

• Keeping invoices and receipts.
• Separating business and personal expenses.
• Using accounting software like Xero or QuickBooks.

Step 7: Plan for taxes and national insurance

As a sole trader, you are responsible for:

• Income tax (on profits above the personal allowance).
• National insurance contributions (NICs).
• VAT (if turnover exceeds £85,000).

Understanding sole trader taxes

Income tax

You only pay income tax on earnings above the £12,570 personal allowance (as of 2024/25). The tax rates are:

• 20% on earnings between £12,571 – £50,270
• 40% on earnings between £50,271 – £125,140
• 45% on earnings over £125,140

National insurance contributions (NICs)

• Class 2 NICs: £3.45 per week (if profits are over £12,570).
• Class 4 NICs: 6% on profits between £12,570 – £50,270, and 2% on profits above £50,270.

VAT registration

You must register for VAT if your annual turnover exceeds £85,000. You can also register voluntarily to reclaim VAT on business expenses.

How long does it take to register?

The registration process itself is quick, but receiving your UTR number from HMRC can take 10 working days (or 21 days if you are overseas).

Is there a cost to register as a sole trader?

Registering as a sole trader is free. However, you may incur costs for:

• Accounting software or an accountant.
• Sole trader insurance (if required).
• Optional VAT registration fees.

Common mistakes to avoid

1. Missing the registration deadline – Register before 5 October in your second tax year.
2. Not keeping proper records – HMRC requires you to maintain accurate business records.
3. Mixing personal and business finances – Open a separate business bank account.
4. Forgetting tax deadlines – Paper tax returns are due 31 October, while online returns are due 31 January.
5. Not saving for taxes – Set aside money for income tax and national insurance.

Not sure whether registering as a sole trader or limited company would be better for you? Read our Sole trader vs limited company blog for information to help you make the choice.

Summary

Registering as a sole trader is a simple and cost-effective way to start a business in the UK. By following this step-by-step guide, you can ensure that you meet all legal and tax requirements while setting your business up for success.

Registering as a sole trader FAQs