How to Register as a Sole Trader – Accounting Wise Have You Covered
One of the first decisions to make when registering as a sole trader is choosing between the pros and cons of different business structures. If you’ve decided to become a sole trader, that’s already progress!
Starting a business as a sole trader does have several advantages:
- It’s really simple to set up.
- It’s usually the easiest structure to manage financially.
- There are fewer legal responsibilities than other types of business.
- You can start trading immediately!
Chances are, you chose to become a sole trader for these reasons, and you’re probably itching to start. So, let’s get going with a straightforward guide to setting up and registering as a sole trader business.
Liability and profits for sole traders
A key point to understand when setting up a sole trader business is that there’s no legal distinction between you and the business. Essentially, you are the business!
It means that all of the profits are yours to keep, but that you’re also liable for any debts.
This makes accounting for sole traders a bit easier to manage. You’ll need to keep accurate, up-to-date bookkeeping records of your income and outgoings.
Do sole traders need a business bank account?
Sole traders aren’t legally required to have a separate bank account for their business. That said, it can make it a bit easier to manage your business finances, especially if you’re also working for an employer, or have multiple businesses or sources of income.
Remember, as a sole trader you’re legally, and personally liable for any debts the business incurs. Good financial management habits will help!
It is worth keeping in mind that you may not be able to open a business bank account until you register as a sole trader.
Can I trade as a sole trader before I register my business?
The quick answer is yes, though there are deadlines and rules that apply. You’ll need to register as a sole trader before the 5th of October in your second tax year.
As accountants, we always advise clients to register as soon as possible. Just remember to keep track of your accounts, even before you register. It makes completing your Self-assessment tax return much easier.
Registering as a sole trader
Once you decide that you want to register as a sole trader business, there are a few considerations.
Naming your sole trader business
Sole traders register under their name, but you can also choose a name to trade under. For example, John Smith might register as ‘John Smith’ whilst trading as ‘Sweet Treats Bakery’ or ‘High Street Newsagents’.
Whilst limited companies need to make sure that their registered company name is unique, sole traders don’t. You do, however, need to be wary of registered trademarks.
Other rules you need to be aware of when choosing a name for your sole trader business
- As a sole trader, you can’t use suffixes to your business. For instance, Ltd or PLC, as this might confuse your business structure.
- You can’t include a ‘sensitive word’ in your name, as set out in this government publication. Examples of these sensitive words include using the word ‘charity’ or ‘chartered’ if you’re neither of those things.
- Business names must not include anything offensive.
- Invoices must include both the name you use to register and your trading name if there is one.
- Having a trading name will help you keep track if you’re a sole trader running multiple businesses.
Do you even need to register as a sole trader?
If your sole trader business is very small, then you may not need to register with HMRC at all. Plenty of people these days have side hustles and hobby businesses, and HMRC recognises this.
Thanks to the Trading Allowance, you can earn up to £1,000 through self-employment, before you need to register. Just remember that the trading allowance is worked out on income, not profits!
If you’re not sure whether you’ll exceed the threshold, don’t worry. Just keep records of your income. Remember, you can register as a sole trader up until 5th October in your second tax year.
