How to be a Sole Trader

What is a Sole Trader?

A Sole Trader is someonewho is the sole owner and decision maker of a business.

As a sole trader you may be the only one working in your business but sole traders can employ staff.  This brings benefits and complications, including the need to set up a formal payroll system to manage your employees tax and National Insurance contributions.

Unlike a Limited Company sole traders do not have to register a company name a Companies House.  You simply come up with a name for your business and, once you've done all the steps below, you're ready to start trading! Here's some ideas on how to choose a good business name.

Sole traders can employ staff and you will need to register for VAT once you reach the VAT threshold.  Find out more about VAT

How to set up a Sole Trader business

• Register with HM Revenue and Customs as self-employed.  You need to do this within 3 months otherwise you'll be fined. The easiest way to register is to call the newly self-employed helpline on 0845 915 4515

• Choose a name for your business.  There's a few restrictions you need to be aware of, see our article Choosing a business name for more information and guidance.

• Have a way to create invoices and, to increase your chances of being paid on time, make sure they display the right information.  See Information that needs to be displayed on an invoice.  You can buy pre-prepared invoice templates or use an online accounting package like KashFlow that creates invoices for you.

• Create a system for keeping clear records of all your income and costs.  It'll help you monitor your business finances, and it's much easier to complete your tax return if you have all the information readily accessible.

• Have a business bank account - see What to consider when choosing a business bank account

• Have basic terms and conditions of business.  A simple document containing details of what you do, what you charge and your payment terms will do.  You can create your own or buy a ready made terms and conditions of business template

• Have the right business insurance in place to protect yourself and your business.  Find out more about business insurance

• Have the correct licences and permissions in place before you start. Restaurants, child-minders, cab drivers and street traders, for example, all need a licence from the local authority.  If this applies to you be prepared to provide proof of qualilfications, proof you are up to date with current industry standards, and your business premises may be checked too.  For any business working with children or vulnerable adults you'll also be CRB checked.

Advantages and disadvantages of being a sole trader business

Tax for sole traders

Some services you may need if you're a sole trader

Business email addresses  so you're not using your personal email address
A phone number so you're not using your mobile
A virtual office address to use on your business stationery so your home address is protected
Somewhere comfortable to meet customers instead of using a coffee shop
Legal documents  save money with cost-effective legal templates you can customise to suit your business
An online accounting system that makes it easy to keep track of your customers, income and costs