If you’ve read our guide to deciding what’s the best business model for you, you may have decided that you want to set up as a sole trader.
A popular choice among many small businesses just starting out, it’s a relatively low-maintenance business model and is super simple to set up.
Here’s what you need to do…
Step 1. Decide what you’ll call your business
This can simply be your own name, or you can create a name for your business if you prefer – just as long as:
a) it isn’t offensive
b) isn’t the same as a current trade mark
c) it doesn’t contain the words ‘limited’’ ‘ltd’, ‘limited liability partnership’, ‘llp’, public limited company’ or ‘plc’ or
d) it doesn't include any sensitive words or expressions (e.g. ‘bank’ or ‘accredited) without relevant permission. (You can check the full list of sensitive words here.)
Step 2. Register for self-assessment with HMRC
And if you’re a contractor or a subcontractor for the construction industry, you should register for the Construction Industry Scheme with HMRC.
And that’s it! That’s all it takes to set up as a sole trader.
And, once you’ve done that, make sure you…
File a self-assessment tax return each year (or hire an accountant to file it for you)
Pay any income tax or National Insurance contributions you owe
Keep records of your business’ incomings and outgoings.
Setting up a separate bank account is an effective way to easily compare your income and expenses with your records
Take a look at our guide business banking for startups for some help choosing a good provider and ensuring you get what you need.
Ensure you include your name and business name (if they’re different) on all your quotes, invoices, letters, and other official paperwork
And then, once your turnover exceeds £85,000, you’ll be legally required to register for VAT – although you’re able to register voluntary beforehand if you want to – and there can be benefits to doing so.
It’s more admin to think about here (as you’ll need to file quarterly VAT returns as well as your annual self-assessment tax return), but early registration does enable you to reclaim VAT if you sell to other VAT-registered businesses and this could be a sizeable chunk of real value to your cash-flow position.
Take a look at our guide to VAT for more information, and to work out whether early registration might be worth the effort involved in the paperwork (or the generally modest cost involved in paying someone else to manage the registration and VAT returns process for you).
Other factors to cross-check
If you’re going to run your business from home, double check that you don’t have any restrictions in your mortgage or rental agreement.
Put robust insurance in place that gives you the right protections. Take a look at our guide to Insurance 101 for small businesses to work out what sort of insurance cover you’ll need. You may be surprised to discover just what you need, even if you’re working from home.
Do you have a pension? Make sure you’re still planning and putting something away for your retirement. You’re entitled to tax relief on the contributions you make, which is a benefit.
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