When you start your own business and start taking on clients, you need to alert the government that you are now a business.
Becoming a sole trader simply alerts the HMRC that you are now self-employed. Registering as a sole trader can be beneficial for many people who are self-employed in a variety of different fields, as it reduces the amount of administration you need to complete when compared to setting up your own limited company.
Another advantage is that you can still have employees while being a sole trader, plus you can also incorporate your business to become a limited company later on, if you choose to do so.
Why register as a sole trader?
Choosing to register as a sole trader is ideal for those with a low-cost business and those who unlikely to build up huge debts. It keeps your accounts simple and is free to set up.
The only thing you do need to bear in mind is that there is a risk to personal finances if you choose to set up as a sole trader. If the business fails, the sole trader is liable for the debts.
How to register as a sole trader in the UK
It is important to register as a sole trader as soon as you decide to become self-employed. If you do not register, then you may face a fine from HM Revenue and Customs (HMRC).
This fine can be up to 100% of the taxes due, so it is important to register as soon as possible. Remember, you still need to register as a sole trader if you work part-time or casually.
If you are still employed and continue working while setting up your business, then you will still need to register with HMRC. This is important if your employment status shows that you are self-employed for some or all of your work.
To register as a sole trader, you simply need to register for a self-assessment tax return.
Once registered, you need to make sure to record all of the accounts for the business including sales and expenses. You will then need to make sure you complete your self-assessment tax return every year.
If you are unsure about whether you need to register as a sole trader, then there are plenty of support channels out there, including the government’s Business Support team. It is much better to ask now and get all of your questions sorted today than potentially face a hefty fine later on down the road.