Starting your own business as a sole trader comes with many different benefits, such as being your own boss, setting your own work hours and calling all the shots yourself. Find out how to set up business as a sole trader.
And unlike forming a limited company, being a sole trader means you’ll face less tape and paperwork, be exempt from Corporation Tax and retain your privacy by not having your information shared publicly on Companies House.
There are a lot of positives to being a sole trader. And the good news is that it’s pretty quick and easy to get started. Of course, there are also drawbacks of being a sole proprietor, which you should be aware of.
Starting a business as a sole trader isn’t as daunting as it may seem. In fact, the legal part of it will take just minutes to complete.
However, to ensure you don’t get thrown in the deep end without a life jacket, we’ve created a simple 5-step process to teach you how to swim and ensure that your business gets off to the best start possible.
So, let’s dive into the facts about seeting up business as a sole trader.
1. Get your idea nailed
You can’t have a business without a business idea! Whether you’re thinking about designing shoes, selling time-management software or becoming a candle stick maker, you need an idea.
As the first step in how to set up business as a sole trader, this might be something that you’ve already nailed, in which case, skip to the next step!
But if you’re still deciding what might be a good fit for you, it might be worth looking at Startup Hive’s list of offline and online business ideas to see if any spark that fire.
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2. Think of a name
Now you know what you want your business to do, it’s time to give it a name!
As a sole proprietor, your legal trading name will be your name. However, that doesn’t mean you can’t use a ‘trading as’ name if you want to give your business a catchy, more meaningful name.
In an ideal world, the name you give your business will be:
- Short, catchy & easy to remember
- Explain what your company is/the services you provide
- Unique and not easily mistaken for something else
But sometimes those rules have to be broken – and using your own name is a great example of this. But if people hadn’t named companies after themselves, there would be no Gucci, Ferrari, or Boeing.
As a startup sole trader, however, it might be worth adding a little more context to your name. So instead of just “Bradley”, you might want to go for “Bradley Dog Walking Services” to make that connection a little bit easier for your customers.
Generally, as long as the name works for you and your customers, isn’t already in use or breaks any HMRC rules (i.e. not offensive or including false information such as ‘LLP’), then go for it.
More tips on how to come up with a catchy business name can be found here.
3. Make a plan
Now, the hard part is figuring out how to turn that vision into reality. Yep, it’s time to make that dreaded business plan.
A business plan is a written document summarising your business, what your products/services are, who your customers are, how your business works, how you will target your customers and more.
It’s basically there to really nail who you are, what your goals are and how you will reach them.
It’s tempting to skip this step. After all, who has time to write everything down when you’re excited to start your business? But trust us – this step is worth it. Did you know that:
- Businesses with a plan grew 30% faster than those who didn’t have one.
- Businesses with a plan were twice as likely to get investments and loans than those without
- Businesses with a plan are less likely to fail (remember: 1 in 5 businesses fail in the first year in the UK!)
In summary, business plans are good and worth the time and effort. To help make it less of a chore, Startup Hive have a free business plan tool to get you started.
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4. Register with HMRC
Now, it’s time to make it official. You may be expecting a big song and dance for this step. Well, you might be a little disappointed.
In order to register as a sole trader, all you need to do is tell HMRC that you’ll pay your tax through Self-Assessment.
That’s it. It’s an online form that takes mere minutes to fill. It’s pretty anticlimactic as far as setting up a business goes.
Once done, you’ll get your Unique Taxpayer Reference (UTR), which you will need to use to complete your self-assessment tax returns every year.
If you’re working in the construction industry as a contractor or subcontractor, you will also need to register with HMRC for the Construction Industry Scheme (CIS). You can also voluntarily register for VAT if you want, but for most startup sole proprietors this won’t be a decision you need to make just yet.
Psst, you can find out more about VAT registration and when you might want to voluntarily register here.
5. Start trading!
Now, it’s time to start running your business. And thanks to that handy business plan you wrote earlier (thanks step 3!), you’ll already know how you’ll be marketing your business and start drawing your first customers or clients in.
It might be intimidating. It is, after all, the final step in how to set up business as a sole trader in the UK.
Remember, not everyone is a natural-born marketer. And some of the biggest hurdles when starting a business can come from getting started promoting your business. So, to get you started, we’ve highlighted some of our best guides to marketing your business online:
- How To Promote Your Business On Google
- 6 Best Website Builders For Small Businesses
- Top 17 Small Business Website Design Tips
- How To Convert More Website Visitors Into Customers
- How To Market A Small Business On Social Media
- What’s The Difference Between PPC & SEO?
- 7 Small Business PPC Tips
- 7 Affordable Small Business SEO Tips
For more expert advice, sign up to StartUp Hive for easy-to-digest guides, done-for-you content and exclusive tips straight to your inbox.
What if I change my mind later?
Sole traders aren’t set in stone for eternity. If you need to make any changes down the line, whether that’s pausing trade, changing your name or closing shop to open a new venture – you’re free to do as you wish.
You can also change the company structure of your business if you want, moving from a sole trader to a limited company. This is a popular option with many businesses, as the added liability protection and tax benefits of a limited company can become very attractive as your business grows in size.
We’ve published a guide about the best time to move from a sole trader to a limited company, and one of the biggest reasons to change from one to the other is when profits reach the Higher Income Tax rate, as you will lose a lot of your earnings through income tax as a sole trader.
If you do want to switch, the process is simple. You need to form a limited company under the same name, inform HMRC of the change and de-register as self-employed, as you will now be paid as an employee of your limited company.
To help complete a full changeover in a few hours, we’d recommend using a company formation agent to carry out the entire process for you. They’ll be there to set up your new limited company, fill out all the paperwork and free yourself of the stress, time and effort.
You can find the best company formation agent for your business here.
Top-Rated Company Formation Agents
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You are ready to go!
Now that you know how to set up business as a sole trader all you really need to do is inform HMRC that you are self-employed and fill out your self-assessment tax returns every year.
The hard part comes from knowing what to do to get your business off the ground and running. Part of this is making a plan and mapping out your goals, while the other half is getting to grips with marketing and promotion and utilising all the tools at your disposal to make running your business easy.
This includes business bank accounts, accounting software, and company formation agents to handle the paperwork.
Top-Rated Accounting Software:
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 | £19/mo | Excellent | 9.4 | Read Review | Visit Website |
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