A sole trader is someone who runs a business on their own as a self-employed person and has the right to make all decisions affecting the business. This is a popular way of setting up as a business in the UK.

Sole trading might be for you when:

• You would like to start operating your business without the need to go through incorporation formalities: there are no formal steps that need to be taken to set up as a sole trader, thereby saving the time and expense often involved in incorporating a company.
• You want to run your own business and receive its profits directly: a sole trader runs a business on their own and has the right to make all decisions affecting the business. All the profits of the business are received directly by the sole trader but the sole trader will be liable to pay income tax on any such profits.
  • This can also be the most efficient way to maximise your personal earnings when building your business, particularly if your annual profit is initially unlikely to exceed £12,500. This is the current tax-free Personal Allowance (which is the amount of income you do not have to pay tax on).
• You do not want to share information about your business’s operations with the public at large: there are no obligations on sole traders to disclose information about their business operations to the public.

How to set up as a sole trader

Setting up as a sole trader is often the simplest way to start running a business. As noted above, there are no legal formalities involved in setting up a sole trading business. However, when you operate as a sole trader you should do the following:

• Choose a name for your business. The name must not include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’. In addition, the name must not be offensive nor the same as an existing trademark. You should check your preferred name on:
  1. the [](https://beta.companieshouse.gov.uk/company-name-availability?)Companies House name availability checker to ensure the name is available for registration should you want to register the company in the future, and
  2. the trademark register to ensure the name is not covered by an existing trademark.
• Keep records of your business’s sales and expenses – you will need to choose an accounting method and apply it carefully throughout your records.

Tax considerations

Even though there are no formalities to start operating as a sole trader, a sole trader must register with HM Revenue and Customs ('HMRC') for tax purposes.

The trading profits of a sole trader’s business form part of the sole trader’s total income which will be subject to income tax. Conversely, if the business makes a trading loss, this may, in certain circumstances, be offset against the sole trader’s other income.

A sole trader who has a turnover of more than £85,000 in a year is required to register for VAT. You can find further information here.

As a self-employed person, a sole trader will also need to make National Insurance contributions, subject to certain earnings thresholds. If they employ any staff, they will pay contributions in respect of the employees’ earnings too.

Please visit the Taxation Section (Sole Trader taxes) for further details

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