A sole trader owns a business alone and is the same as self-employed. You must register as self-employed for tax purposes if you expect to earn over £1000, and the deadline for registration is October 5th. Failing to register by this deadline may result in fines. Remember that you don’t need a distinct business name; your personal name suffices but choose an unused name that doesn’t offend or include "ltd" or "plc".
Key Responsibilities and Registration Process
As a sole trader, you’re liable for all debts and fully control your business. There’s no legal distinction between you and your business. It’s important to keep records of all income and expenses as you’re taxed on all profits and sole traders don’t file accounts with a public body.
Registering is a simple process:
- Pick a business name (if you want to use one).
- Register with HMRC.
- Register for VAT if your earnings require it.
- Obtain any necessary licences.
Benefits of Registering as a Sole Trader
While registering brings certain benefits, such as using tax returns as proof of income, it’s not always necessary for every business. If your potential earnings exceed the trading allowance (the amount you can earn tax-free), then you need to register with HMRC to ensure you’re taxed correctly. This registration gives you complete control over your business activities and legal responsibility.
Remember, as a sole trader, you:
- Must register with HMRC if you’ll earn above the trading allowance.
- Need to complete this registration by October 5th.
- Are subject to fines if registration is not completed on time.
This guide outlines the process of sole trader registration, the associated benefits, and the reasons you might want to consider doing so.