How to register as a sole trader: Step-by-step guide for small business owners

Published Friday 5 December 2025

Table of contents

• What is a sole trader?
• Pros and cons of being a sole trader
• When do you need to register as a sole trader?
• Information you need to register as a sole trader
• How to register as a sole trader
• Your responsibilities as a sole trader
• FAQs on registering as a sole trader

Key takeaways

• Register as a sole trader with HMRC by 5 October following the tax year you earned over £1,000 from self-employment to avoid late registration penalties.

• Gather your National Insurance number, business start date, and business name before beginning the online registration process, which takes approximately 10 minutes to complete.

• Consider registering for VAT if your annual turnover exceeds £90,000 or voluntarily if below this threshold to reclaim VAT on business expenses when selling to other VAT-registered businesses.

• Maintain clear records of all business income and expenses using accounting software to simplify your annual Self Assessment tax return and ensure compliance with your ongoing responsibilities.

What is a sole trader?

is the single owner of a business with complete control over all decisions. You have no partners or directors, and all profits belong to you.

Despite the name, you can hire employees as a sole trader. The "sole" refers to ownership, not workforce size. This makes it different from partnerships or limited companies where ownership is shared.

Sole trader status works well for:

• New businesses: Simple structure for testing business ideas
• Contractors: Straightforward setup for freelance work
• Self-employed professionals: Minimal admin for service-based work
• Growing businesses:Easy to change structure later as you scale

Pros and cons of being a sole trader

If you choose to set up your business as a sole trader - as opposed to a partnership or company - there are some clear benefits.

Advantages of being a sole trader

• Startup costs are minimal
• You don't have to register a company name or complete any Companies House forms
• There are fewer reporting requirements than other business structures
• You keep all the profits (and carry all the losses)

But as with any business structure there are some downsides.

Disadvantages of being a sole trader

• The debts and liabilities are your personal responsibility and this may put your personal assets at risk if the business fails
• You're responsible for the pension contributions for yourself and any employees
• If you want to sell a stake to investors to get business finance, you'll need to change your business structure
• If you want to sell the business, it can be harder to find a buyer, especially if what you offer is very specialised

When do you need to register as a sole trader?

You must register as a sole trader if you earn more than £1,000 from self-employment in any tax year (6 April to 5 April).

Key deadlines to keep in mind as a sole trader:

• Registration deadline: You must register for self-assessment by 5 October after the tax year you became self-employed.
• Consequence: Fines apply if you register late, though late notification penalties may not be charged if the tax is paid on time.
• Applies to: All self-employment income, including part-time side businesses

Information you need to register as a sole trader

Before you start the registration process, it helps to have a few details ready. Gathering this information beforehand will make everything go smoothly. You'll need your:

• National Insurance number
• business start date
• business name and type of business

How to register as a sole trader

Registering as a sole trader takes about 10 minutes online and gives you legal permission to run your business and pay the correct taxes. Here's the complete process:

1. Choose a business name

Business naming options for sole traders:

• Use your legal name: Trade as "Charlie Cooper" with no additional registration needed
• Choose a trading name: Trade as "Charlie's Coffee Caravan" for customer recognition
• Legal requirement: Include both names on official documents as "Charlie Cooper trading as (t/a) Charlie's Coffee Caravan"

Naming restrictions:

• Cannot use "limited", "Ltd", "LLP", or "plc"
• Must avoid trademarked names (check the UK Intellectual Property Office)
• Cannot use offensive or restricted words

2. Register as a sole trader with HMRC

HMRC registration automatically covers two essential requirements:

• Self Assessment: For paying income tax on your profits
• National Insurance: Class 2 and Class 4 contributions if profits exceed £12,570. HMRC has noted that some taxpayers above this threshold were affected by a calculation error for the 2024-25 tax year, which is being resolved.

Additional registrations you may need:

• VAT registration: Required if annual turnover exceeds £85,000
• Employer registration: Required if you hire staff

Register for Self Assessment

The simplest way to register as a sole trader is through the HMRC Government Gateway. You'll need a Government Gateway user ID and password to sign in. If you don’t already have a user ID, you’ll be able to create one and then complete the sole trader registration form. Or you can complete the HMRC form 'Register if you're a self-employed sole trader' then print and post it to HMRC.

You'll need to have your National Insurance number, the start date of your business, and the name and type of business for the registration. Once you’ve completed and submitted the registration form, HMRC will send you a 10-digit Unique Taxpayer Reference (UTR) and an activation code for your online account. You can then use this online account to complete your annual Self Assessment income tax return.

National Insurance obligations:

• Threshold: Pay if annual profits exceed £12,570
• Types: Class 2 and Class 4 contributions
• Payment method: Calculated automatically through your Self Assessment return
• No separate process: Paid alongside your income tax

3. Register for VAT

VAT registration requirements:

• Mandatory: Annual turnover over £90,000 (current or expected). The threshold was raised for the first time since 2017 in the Spring 2024 budget.
• Voluntary: Register below this threshold to reclaim VAT on business expenses
• Benefit: Reclaim VAT when selling to other VAT-registered businesses
• Process: Register through HMRC's VAT service using your Government Gateway ID

You can learn more in this detailed guide to value added tax (VAT).

4. Register as an employer

Employer obligations when hiring staff:

• : Use the employer registration service
• Set up Pay As You Earn (PAYE): run payroll yourself or use a provider to collect Income Tax and National Insurance from employees
• Pension scheme:Enrol eligible employees and contribute to their pension
• Insurance: Get Employers' Liability insurance to protect against workplace claims

5. Licences and permits

Licences and permits depend on your business type and location:

Common licence requirements:

• Food businesses: Food hygiene and premises licences
• Alcohol sales: Premises and personal licences
• Entertainment: Public entertainment licences
• Beauty treatments: Local authority permits
• Street trading: Market or street trading permits

Next steps: Check with your local council for specific requirements in your area.

6. Professional qualifications or registrations

Professional registrations are required for regulated industries:

Examples include:

• Healthcare: Register with Health and Care Professions Council (physiotherapists, dietitians)
• Financial services: Financial Conduct Authority registration
• Legal services: Solicitors Regulation Authority membership
• Construction: Gas Safe or electrical certification

Action required: Contact your industry's regulatory body to confirm registration requirements before starting work.

Professional organisations, such as the Federation of Small Businesses, are a good source of advice, and your local Chamber of Commerce may be able to provide contact details for local business groups.

Your responsibilities as a sole trader

Once you're registered, you'll have some ongoing responsibilities to keep your business compliant. These include:

• keeping records of your business's sales and expenses
• sending a Self Assessment tax return every year
• paying Income Tax on your profits and Class 2 and Class 4 National Insurance

Using online accounting software such as Xero can help you track your income and expenses, so you're prepared when it's time to file your tax return.

FAQs on registering as a sole trader

Here are answers to some common questions about registering as a sole trader.

Is it worth registering as a sole trader?

Registering as a sole trader is essential if you earn over £1,000 from self-employment in a tax year. It's the simplest business structure to set up, with fewer administrative tasks than a limited company. This makes it a great choice for new businesses, freelancers, and contractors who want to get started quickly.

What are the disadvantages of being a sole trader?

The main disadvantage is unlimited liability, which means your personal assets could be at risk if the business has debts. It can also be harder to secure financing or sell the business compared to a limited company. You are also personally responsible for all business decisions and record-keeping.

Do I need a separate bank account as a sole trader?

While not a legal requirement, opening a separate business bank account is highly recommended. It makes it much easier to track your income and expenses, simplifies your bookkeeping, and helps you look more professional to clients. It also makes preparing for your Self Assessment tax return much simpler.