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Setting up as a sole trader in the trades

Reading time: 3 minutes

Sole traders are the backbone of the building business, with over 4.5 million of us working for ourselves. Here’s what you need to know to set up as a sole trader.

As a sole trader, you’re not an employee, but you’re running a business. Once you’ve paid off all taxes, you’ll be able to keep any leftover profit.

As soon as you start working for yourself, you’re classed as a sole trader by HMRC – even if you haven’t told them. Legally, you’re required to register as a sole trader if you’ve earned more than £1,000 from self-employment in the last year.

You can start the process through the Government’s website.

The first thing to do when setting up as a sole trader is to choose a name. Your business can be called anything (within reason), including your name, a description of what you do or something completely random.

Being a sole trader means you’re responsible for your tax affairs and paperwork. You will need to register for self-assessment tax and complete a tax return every year.

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Five things to know

  • Register quickly - If you don’t register with HMRC within the first three full months of becoming self-employed, you may have to pay a penalty of £100.
  • Do-it-yourself - There are loads of sites that will charge you a fee to set-up as a sole trader, but they’re just making money off something you can take care of. You should be able to register for self-assessment yourself in less than an hour.
  • Set up a business bank account - You can use your current account, but it’s much easier to keep track of spending if you use a separate bank account for your business.
  • Start saving - The minute you start earning, start saving for tax, NI contributions and your pension.
  • Keep records - You should keep records of everything, from the hours you've worked to all receipts and expenses.

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Benefits of being a sole trader

Being a sole trader has some significant benefits to you, which include:

  • The freedom and flexibility to work when, where and for whom you want. You’re not tied to one employer.
  • A bigger wage when compared to a take-home employee salary. Remember, your day rate needs to cover everything, including tax, NI, pension, holiday pay and sick pay.
  • The ability to claim expenses. Everything you need to do your job, including tools, clothes and your van, can be claimed as a business expense.
  • Once you’ve paid all bills and taxes, you get to keep any leftover profit.
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Considerations as a sole trader

Being a sole trader means you’re running a business, and there are some downsides to that.

  • There’s a lot of paperwork. Invoices, assessments, taxes and tick-boxes. You’ll be responsible for it all. It can feel quite daunting at the start but trust us, it gets easier.
  • You don’t get sick pay, holiday pay, paid bank holidays or paternity leave - you’ll have to budget for those yourself.
  • You’ll need to start saving straight away to pay for things such as your tax, NI and pension. You should also build up a pot to cover you for sick days and holiday pay.
  • You might also require specific types of insurance and protection that can add to your monthly outgoings.
  • If your business makes a loss, you’ll have to cover it.

Setting up as a sole trader is straightforward and shouldn’t take longer than an hour. It’s the simplest way to run a business, which is why it’s so popular. With millions of sole traders already operating across the country, you could be up and running with them in no time.

Setting up your business