Taking the leap into self-employment is an exciting step. For many, the simplest and most common way to start is by becoming a sole trader. This business structure means you, as an individual, are the business. It’s quick, straightforward and, crucially, involves minimal paperwork compared to a limited company.
However, even though it’s simple, there are essential steps you must take to ensure you are legally compliant and set up for success from day one. If you’ve searched online, how to set up a sole trader business, this article is designed to walk you through the process clearly and straightforwardly. We are here to be your trusted guide, making the process approachable, removing the stress of managing these new obligations alone.
The most fundamental part of setting up as a sole trader is registering with the government for tax purposes. You must officially notify HMRC (His Majesty's Revenue and Customs) that you are self-employed.
You need to register with HMRC for Self Assessment to pay income tax and National Insurance. This is the official mechanism through which you declare your business income and pay your taxes.
Failing to register on time can result in penalties, which is the last thing you need when starting a new venture. So, marking that 5th October deadline in your calendar is the single most important administrative task you have.
Once registered, your focus shifts to the practicalities of running your business and managing your new responsibilities.
You must keep records of all income and expenses from day one. Good record-keeping is the bedrock of a successful sole trader business. Your Self Assessment tax return depends entirely on accurate records.
It is also highly recommended that you consider business essentials like insurance and a separate bank account. A dedicated bank account keeps your business finances completely separate from your personal money, making record-keeping and tax calculation far easier.
As a sole trader, you need to understand responsibilities for tax, National Insurance and pensions.
One of the great appeals of setting up as a sole trader is that the structure is designed to keep things simple, minimal paperwork compared to a limited company. Generally, you don't have to deal with corporation tax, formal statutory accounts or filings with Companies House, which saves you a vast amount of administrative time. However this depends on your turnover and costs. We may recommend a bookkeeping package and set of year end accounts if this would benefit your tax situation.
However, simple doesn't always mean easy. When you’re busy trying to build your business, learn a new market and find clients, managing VAT registration thresholds, allowable expenses and tax deadlines can quickly become overwhelming.
That’s why we always recommend you consider seeking an accountant to reduce stress and make things easier. Here at Simply Accounts, we're not a faceless online company, our advice comes from real people who care. And our sole trader accountants can ensure you:
We’ll take the weight off your shoulders, giving you peace of mind that your financial house is in order. We’ll work with you to find a service that fits best, ensuring your start to self-employment is as smooth and successful as possible. Get in touch with our team today, we’re always happy to help!
Image Source: Canva