a featured blog image for a topic All the Things You Need to Know About Registering Your Own Solo Business with the HMRC

All the Things You Need to Know About Registering Your Own Solo Business with the HMRC

In the United Kingdom, the most common way of starting a business is registering as a sole trader. Simply put, sole trader businesses are very small businesses with low turnover, low risk, and with a single owner. If you are also just starting to work for yourself, you’re classed as a sole trader. This means you are already employed even if you haven’t told HM Revenue & Customs (HMRC) about it yet.

How do I know that I’m self-employed?

You are considered self-employed when you…

  • Are running your own business for yourself. This means that you are solely responsible for its success or failure.
  • Are offering your services to several customers at the same time.
  • Have the power to decide how, when, and where to do your work.
  • Have the power to hire people at your own expense to work with you or for you.
  • Own and provide the equipment to do your work.
  • Charge a price for your work.
  • Sell goods or services in order to make a profit, including through online channels.

If you are self-employed, you may need to register as a sole trader to the HMRC.

What is a sole trader?

A sole trader is a person who runs their own business as a self-employed individual. Sole traders can keep all their business’s profits after taxes have been paid. They are also solely responsible for any losses that their business makes.

When do I need to set up as a sole trader?

One question most self-employed individuals ask a lot is whether they have to register or set up as a sole trader at all. What if they’re just starting out with a hobby business? What if they’re just testing out a new business idea? What if they’re unsure if their business idea will really work? Will these individuals need to register already?

The answer is not really. You will only need to set up or register as a sole trader when the following applies:

  1. There is a certain amount that you can earn when self-employed before HMRC expects you to pay tax. This is called the trading allowance. If you earned or if you think you will earn more than £1,000 from self-employment in a tax year, you will need to register.
  2. You need proof of self-employment.
  3. You want to qualify for benefits, so you want to make voluntary National Insurance payments to help you qualify.

How do I register as a sole trader?

It is free to register as a sole trader through the government website. However, a sole trader registration does not register a company or a business. This means that your business is solely owned by you, and that you do not have partners and shareholders that you work with. Yes, you can still employ other people to work for you so you can’t really be referred to as a “one-man band”.

So what is the point? As a sole trader who decides to register, you will simply notify HMRC that you intend to start working for yourself and are self-employed. You will also not really need to have a business name in order to register, wherein they will alert you if there’s already a business registered under that same name (more on this later).

What you will get as proof once you’re registered as a sole trader is your Unique Tax Reference (UTR) number, which will be sent to you around 10 days after your registration has been completed. No certificate or documentation will be provided to you as proof of your registration because there’s also no public list or database where they can look up sole traders with your UTR number.

How do I name my business as a sole trader?

When registering as a sole trader, HMRC will want to know what you will be naming your business in order to track and make sure you pay enough tax. You can choose to trade under your own name. But you can also choose another name for your business. However, you really do not need to register a business name. For official records and documents, you must always include your name and your business’s name, should you decide to have one.

As mentioned, the names of sole traders are kept private. There is no public list of sole traders and their business names, which is why HMRC will also not tell you if you are using the same name as someone else. This means that, as a sole trader, your business name is not checked, registered, or protected in any way.

Finally, should you decide to come up with your business name, you must not include the words “limited”, “Ltd.”, “limited liability partnership”, “LLP”, “public limited company”, or “PLC”. Offensive words and existing trademarks should also not be included.

What are my responsibilities as a sole trader?

A sole trader is a person who runs their own business as a self-employed individual. Sole traders can keep all their business’s profits after taxes have been paid. They are also solely responsible for any losses that their business makes.

A sole trader’s responsibilities include…

  • Keeping records of your sales and expenses.
  • Completing a Self-Assessment tax return every year.
  • Paying Income Tax on your profits.
  • Making National Insurance payments.

When do I need to set up as a sole trader?

One question most self-employed individuals ask a lot is whether they have to register or set up as a sole trader at all. What if they’re just starting out with a hobby business? What if they’re just testing out a new business idea? What if they’re unsure if their business idea will really work? Will these individuals need to register already?

The answer is not really. You will only need to set up or register as a sole trader when the following applies:

  1. There is a certain amount that you can earn when self-employed before HMRC expects you to pay tax. This is called the trading allowance. If you earned or if you think you will earn more than £1,000 from self-employment in a tax year, you will need to register.
  2. You need proof of self-employment.
  3. You want to qualify for benefits, so you want to make voluntary National Insurance payments to help you qualify.

When do I register for VAT as a sole trader?

Will you need to register for VAT right away? The answer is no. You may voluntarily register for VAT if your turnover is over £85,000 and if it is needed in order for you to do business, like when you’re selling to other VAT-registered businesses and want to reclaim the VAT.

Summary

Starting your own business means you also have to carry all of the responsibilities that come with it. This includes registering your business with HMRC. However, you are not expected to do so if your projected earnings for a tax year do not go beyond the trading allowance, which is at £1,000.

However, when you do register, as a business owner, you will have to be responsible for keeping your business’s sales and expenses records, paying income tax and making national insurance payments, and completing a Self-Assessment tax return every year. 

Grab Your Seat Here for the upcoming Wealth Lab!

Leave a Comment

Your email address will not be published. Required fields are marked *