How to Register as a Sole Trader


The sole trader is the process of running and operating your business in the simplest way. It allows you to have control and flexibility over various operations. However, it could be very costly if you’re solely liable for the success and the failure of your business. Today, we’ll discuss what a sole trader is, how to register as a sole trader, and its pros and cons.

What’s a Sole Trader?

The sole trader is when you’re running your own business and have sole ownership and self-employment. Unlike partnership, LLC, or corporation, the sole trader doesn’t have a board of directors, partners, or shareholders. It means that you’re solely responsible for everything in your business.

You have complete autonomy over your business and manage profitability, benefits, and assets. It’s highly rewarding because you don’t have to share the profit with anyone. However, the biggest risk a sole trader has to face is unlimited liability. For instance, if any of the customer or client files a lawsuit against your business, then you have to sell your personal assets in order to pay your creditors.

Many individual people and families rely on sole trader business as their main source of earning. It’s because they don’t have to hire employees and they do the work by themselves like hairdressers, makeup artists, decorators, interior designers, plumber, photographer, electrician, etc.

Sole Trader vs. Self Employed 

The sole trader means that you’re the sole owner of your business and self-employed at the same. We can also say that the sole trader is the self-employed, but every self-employed person can’t be a sole trader.

For instance, a person is self-employed via LLC or partnership business, and that’s why he’s not the sole owner and sole trader of his business. It’s important to mention it here that many contractors run their limited company, where they work themselves and don’t hire anyone. Therefore, their business would be the company and not the sole trader.

How to Register as a Sole Trader 

It’s time to discuss the main question that how to register as a trader. However, some people have to register with HMRC as a sole trader. It’s because their earning was more than 1000 pounds last year from the self-employment, and they want to register their business as a sole trader. It provides tax-free childcare and many others benefits if you prove that you’re a self-employed and sole trader and making voluntary tax payments. Anyways, some of the steps in registering as a sole trader are as follows;

  • First of all, you should contact HMRC, and inform them that you’re a self-employed person, and you want to pay taxes as a sole trader.
  • Secondly, you should complete the registration self-assessment form of HMRC either by post or online.
  • Thirdly, your online HMRC account should be active. After finishing the registration form, the HMRC would send you a taxpayer unique 10 digit reference number and the online account activation code
  • Finally, you should complete the self-assessment tax return annually by using the online account that you have created.

If you’re a sole trader, then you don’t have to register it with Companies House.

Sole Trader & Taxes 

The sole trader has the liability to pay different types of taxes and they’re as follows;

  • Income Tax: as the name implies, it’s the tax on income that the owner has to pay. Now, the question is how much income tax you have to pay. It depends on your net income after all the expenses and the country’s tax rate where you’re operating your business.
  • National Insurance: a sole trader has to pay Class 2 & Class 4 national insurance, both of these classes set the profit limits. For instance, the profit limit is 6475 pounds for Class 2 and the profit limit is 9500 pounds for Class 4.

The self-assessment tax return would allow you to check, calculate, and pay the insurance and income tax annually.

Sole Trader & VAT (Value Added Tax)

You have to check whether your sole trader business is registered for VAT (value-added tax) or not if your profit has the VAT threshold limit. For instance, currently VAT threshold limit is 85,000 pounds. However, if your profitability and turnover haven’t reached the VAT threshold limit, then you can register for VAT voluntarily. It’s important to keep in mind that when a sole trader becomes registered for VAT, then it has the following responsibilities;

  • Maintaining VAT account and VAT records
  • You have to submit VAT returns to the concerned department
  • You have to pay VAT on all the purchases of your business
  • You should charge VAT on the sale of product/services

Sole Trader & Invoicing 

An invoice is a receipt or document that a seller sends to the buyer. It comprises a list of sale items and informs the customer that how much he has to pay. A sole trader or any business person has to deal with two types of invoices; purchase invoices and sale invoices. The purchasing invoice you receive from suppliers and the sale invoice you send to the customers. However, you can easily create the sale invoices by using the following tools;

  • Premade Invoice (it offers templates for sole traders)
  • Debitoor (it’s online invoicing software)

Sole Trader Accounting Software 

A sole trader has the liability to manage and oversee the various operation of the business. Therefore, he should have the right accounting and financial tools. For instance, Debitoor is a user-friendly invoicing and accounting software that allows users to issues invoices, manage banking, track expenses, and create financial reports.

Pros of Sole Trader 

When you’re learning what a sole trader is and how to register as a sole trader, then you should be familiar with its advantages and disadvantages. Some of the main advantages of the sole trader are as follows;

Limited Statutory Obligation

The registration process for the sole trader is very simple and easy. You just have to contact the HMRC and you can even do it online. However, the registration process for corporations and LLCs is very lengthy.

Convenient Accounting

The account management for the sole trader is very simple. All they have to do is to keep and maintain the record of income, expenses, invoices, and profit detail. You have to pay less money to the accountant because of the limited work.

Keeping the Profit

You don’t have to share the profit with the shareholders and the partners. The sole trader could keep the profit all to himself. If you’re hiring an employee, then you can pay him wages. Otherwise, you have all the profit.


The sole trader doesn’t have to share the accounting information with the public or the Companies House. It provides you a competitive edge that your competitors don’t know about your business.

Easier to Change

If the sole trader doesn’t feel good about a certain strategy, then he can change it at any time. He doesn’t have to get the permission of anyone.

Cons of Sole Trader 

Unlimited Liability

The biggest drawback of a sole trader is unlimited liability. If you don’t meet the creditor’s requirements and debt obligation, then you have to sell your personal assets in order to pay them to them.

Clients avoid them

It’s difficult for the clients to trust a sole trader that is working as an independent contractor or a freelance. It’s because dealing with one person is risky, and that’s why they prefer to work with companies.

High Taxes

LLCs and corporations have got more tax benefits than sole traders. In some cases, they have to pay lower taxes. The sole traders could request tax allowance on business assets and expenses, however, the companies have more benefits.


The sole trader is the one person who is doing all the work. If he gets sick or goes somewhere, then the business would go down. That’s why it’s very risky and stressful.

Conclusion: How to Register as a Sole Trader 

After an in-depth study of how to register as a sole trader, we have concluded that sole trading is indeed a very profitable business and easy to establish. If you want to launch and register your sole trading business, then you should carefully read the abovementioned guidelines.

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