How to register as a sole trader with HM Revenue & Customs in England, Wales and Scotland

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According to HMRC, 60% of businesses in the UK are sole traders.

If you’re thinking of starting a business and becoming self-employed, you’ll probably join the ranks of enterprising sole traders that form the backbone of Britain’s economy.

But where do you start? We’ve got everything you need to know in this guide to registering as a sole trader.

Step 1: Decide whether sole trader status is right for your business

What business structures are there in the UK?

There are a number of different business structures available in the UK.

  • Sole trader

  • Partnership

  • Limited company

They differ in terms of:

  • how much admin is involved

  • how much privacy you have

  • how you pay your taxes

  • how much tax you pay

  • your liability for any losses

Each has its own pros and cons, and the structure you choose will depend on your individual circumstances. Take a look at our comprehensive guide to business structures to find out more.

Given the popularity of sole trader status, you might have guessed already that this is the simplest business structure to use. It can also be the most tax-effective (up to a certain level of earnings, up to £30k-ish). However, sole trader status also means you ARE the business in the eyes of the law. So if your business makes losses, you are personally liable.

What’s the difference between a sole trader and a limited company?

The key difference between a sole trader and limited company is financial liability. As a sole trader you are liable for any debts that your business incurs, which means your personal savings, home and other possessions are at risk from creditors.

If your start-up business plans involve a huge amount of setup costs, then you may want to consider setting up a limited company instead.

At Transmit Startups we specialise in helping entrepreneurs get their businesses off the ground with a government-backed Start Up Loan of between £500-£25,000. Our average loan recipient borrows  under £10,000 and will typically register as a sole trader when just starting out.

Can I be employed and a sole trader at the same time?

Yes. If this is permitted within your employment contract, then you can be both employed and a self-employed sole trader at the same time. By registering legally with HMRC as a sole trader you will have to fill in a tax return that declares all of your income – including the money that you earn from your regular employment.

Step 2: Register as a sole trader

How do I register as a sole trader?

The good news is, registering as a sole trader is really easy and can be quickly completed online. Whether you’re based in England, Wales or Scotland, the process is exactly the same.

[For those in Northern Ireland, you can find out more here about how to register as a sole trader, as the steps you need to take may depend on whether you plan to move to the UK to trade.]

Registering as a sole trader online

The quickest and easiest way for most to register as a sole trader is to do so online. This can be done by clicking here to start your sole trader registration.

Registering as a sole trader by phone

Alternatively, you can register over the phone by calling the HMRC Newly Self-Employed Helpline on 0300 200 3500.

Registering as a sole trader by post

If post is your preferred method when it comes to official documents, then that’s just as easy. Simply complete the HMRC CWF1 form at this link online. Print out the completed form and then post it to the address given on the form.

When do I have to register as a sole trader?

No matter the nature of your business, whether you’re a dog walker or an app developer, it’s important to know that there is some urgency around registering.

As soon as you start earning money through your start-up business / self-employed venture, then you need to register with HMRC.

There are strict rules around when you need to register, so be sure to find out about these on the HMRC website as soon as you can. This applies even if you are earning extra from being self-employed even part time or in your spare time. Failing to register with HMRC could lead to a £100 penalty.

Step 3: Build your business

Once you’re registered as a sole trader, you can focus on the fun stuff: developing and running your business.

If you haven’t already, it makes sense to write a business plan. This will help you identify your goals and reach them faster. Find out about our simple startup business plan template.

Marketing planning and market research is also an important thing to consider, as it will help you understand your target audience and how to reach them. Check out our step-by-step guide to marketing for startups.

And don’t forget your finances! Cash flow forecasting is especially important for startups, as you’ll probably be investing money before you start earning it back. Make sure you get to grips with your budget, cash flow and pricing ASAP so you can spot any future issues and take action to prevent them.

Need some cash to get your business off the ground? If you have been trading for less than two years - or if you're thinking about starting a business - you could be eligible for a government-backed start up loan.
Find out how much you can borrow using our Start Up Loan calculator.
Or read more about affordable start up loans.
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