You’re self-employed if you run your own business as an individual and work for yourself. This is also known as being a ‘sole trader’.
You can keep all your business’s profits after you’ve paid tax on them. You’re personally responsible for any losses your business makes. You must also follow certain rules on running and naming your business.
When you need to set up as a sole trader
You need to set up as a sole trader if any of the following apply:
- you earned more than £1,000 from self-employment between 6 April 2022 and 5 April 2023
- you need to prove you’re self-employed, for example to claim Tax-Free Childcare
- you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits
How to set up as a sole trader
To set up as a sole trader, you must register for Self Assessment.
If you’ve already registered for Self Assessment for another reason (for example, you have income from a pension or a property), you still need to register for Self Assessment as a sole trader. This will register you for Class 2 National Insurance contributions.
Your responsibilities
You’ll need to:
- keep business records and records of expenses
- send a Self Assessment tax return every year
- pay Income Tax on your profits and Class 2 and Class 4 National Insurance - use HMRC’s calculator to help you budget for this
You’ll need to apply for a National Insurance number if you’re moving to the UK to set up a business.
VAT
You must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.
Working in the construction industry
Register with HMRC for the Construction Industry Scheme (CIS) if you’re working in the construction industry as a subcontractor or contractor.
Naming your business
You can trade under your own name, or you can choose another name for your business. You do not need to register your name.
You must include your name and business name (if you have one) on official paperwork, for example invoices and letters.
Choosing your business name
Sole trader names must not:
- include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
- be offensive
You need to get permission if your name contains a ‘sensitive’ word or expression, or suggests a connection with government or local authorities. For example, to use ‘Accredited’ in your business name, you need permission from the Department for Business and Trade (DBT).
Check which words you need permission to use, and who from.
If you choose a name or logo that’s registered as a trade mark or is already being used, the owner could take legal action against you.
If you register a trade mark, it’s easier to stop other businesses using your name or logo.
Help and support
You can sign up for business support emails from HMRC to help you if you’re working for yourself.
