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An individual will need to set up as a sole trader if any of the following apply:

  • they earned more than £1,000 from self-employment in any given tax year (April to April)
  • they need to prove theyre self-employed, for example, to claim Tax-Free Childcare
  • they want to make voluntary Class 2 National Insurance payments to help them qualify for benefits
  • To set up as a sole trader they to register for Self-Assessment and file a tax return every year.

Sole Traders responsibilities

A sole trader needs to:

  • keep records of their business’s sales and expenses
  • submit a Self Assessment tax return every year
  • pay Income Tax on profits and Class 2 and Class 4 National Insurance

They’ll also need to apply for a National Insurance number if they’re moving to the UK to set up a business.

VAT Position

A sole trader must register for VAT if their turnover is over £85,000. They can register voluntarily if it suits their business, for example, if they want to sell to other VAT-registered businesses and want to reclaim the VAT.

Working in the construction industry

If a sole trader is working in the construction industry as a subcontractor or contractor, they need to register with HMRC for the Construction Industry Scheme (CIS). This means the contractor has to deduct money from subcontractors payments. These deductions count as advance payments towards the subcontractor’s tax and National Insurance.

Naming their business

Sole traders can trade under their own name, or they can choose another name, they are under no obligation to register the name. However, they must include their name and business name (if they have one) on all official paperwork, for example, invoices and letters.

If they want to protect a business name, they’ll need to register it as a trademark to stop other people from trading under the same name.

Business names

If a sole trader does use a business name it must not:

  • include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
  • be offensive
  • be the same as an existing trade mark

In addition, the name cannot contain a ‘sensitive’ word or expression, or suggest a connection with government or local authorities, unless they get permission.

Sole Traders and GDPR

Sole traders using their own names are still individuals so GDPR will apply if their details are being stored. However, this is still somewhat contentious as they have a public persona for running their business whilst also being private individuals. In these instances, it’s best to ensure you have consent as with any other individual.