What a sole trader is
A sole trader is a type of business. It’s the simplest business structure to set up and keep records for.
As a sole trader you:
- work for yourself
- are classed as self-employed
- make all the business decisions
There are other ways to set up a business.
You can be a sole trader as your only job or be employed and self-employed at the same time.
Most people set up as a sole trader when first starting out as a business.
This guide is also available in Welsh (Cymraeg).
Sole trader responsibilities
You’ll have some legal, financial and other responsibilities when running a sole trader business.
Legal risks or ‘liability’
Sole trader businesses have ‘unlimited liability’ which means owners are personally responsible for all of the debts of the business. If something goes wrong, you will have less protection. You may be able to get more protection with business insurance.
Finances
You keep all the profits after paying tax.
Naming your business
As soon as you start working for yourself you should choose your business name - you can choose a trading name or use your own name.
Keeping records and accounts
When you start trading you must keep records. This will help you work out your profit or loss for your Self Assessment tax return.
Registering as a sole trader
You can start trading straight away without registering. However, you must register for Self Assessment as a sole trader if you earn more than £1,000 in a tax year (from 6 April to 5 April). You can choose to register earlier.
After you’ve registered you will need to submit Self Assessment tax returns.
Taxes
When you submit your Self Assessment tax return HM Revenue and Customs (HMRC) will work out if you need to pay Income Tax and National Insurance contributions based on your profits.
You need to register for VAT if you meet the requirements. You can choose to register before you meet the requirements if you want to reclaim VAT on business expenses.
There may be other taxes you need to register for depending on what you do. Check what taxes may apply to you as a sole trader.
Find out about tax reliefs for sole traders to reduce your tax bill.
Rules for your type of business
You may have other responsibilities depending on what your business does.
Check if you need:
- licences or permits, for example to play music, sell food or to trade in the street
- business insurance
There are also rules you must follow if you:
Where you work
Check what your responsibilities are if you:
If you rent or buy a property, you may have to pay business rates. Small businesses can apply for a discount on business rates and some may pay nothing.
Check if you can claim office, property and equipment as expenses.
Taking on people to help
There are things you’ll need to do if you take on your own employees. You’ll have more responsibilities, including:
- running payroll
- paying for their National Insurance - but you can claim an allowance to reduce your bill
- providing workplace pensions to eligible staff
If you take on agency workers or freelancers you have some responsibilities, for example their health and safety.