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3 legal steps every UK sole trader must follow

Business tips, Starting your business · 31/01/20 12:10 · Daniel McLeod

3 legal steps UK sole traders must follow

Here are the 3 steps needed to legally work as a sole trader in the UK. 

(This post is short, because the process is easy. Let’s jump right in!)

Step 1: Find out whether you need to register with HMRC

If you’re a self-employed worker in the UK and you earn more than £1,000 per year (your non-taxed trading allowance), you’ll need to register with HMRC. Failing to do so will put you in HMRC’s bad books – and who needs that stress?

As a sole trader, you’re operating under the simplest self-employed business structure – limited company and business partnerships being the other two. HMRC has guidelines on what counts as self-employed (and by extension, whether you’ll need to register).

Remember, for sole traders there’s no legal distinction between you and your business, which means that you’re personally liable for your company’s losses and gains. This can feel daunting at first, but it’s good to remember the positives of becoming self-employed.


Step 2: Register with HMRC

The online registration process is straightforward. You can find it on HMRC’s website. But before starting, you should give some thought to what you want to call your business. There are rules on what names you can and can’t legally use.

For example, as a sole trader your name can’t:

  • Include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
  • Be offensive (HMRC does not define ‘offensive’ – just be sensible and humane)
  • Be the same as an existing trademark
  • Imply a connection with a government department, devolved administration or specified public authority*

You also have the option to register your business name as a trademark, if you want to stop others from using it. Just be smart about it – the process can be expensive and time consuming. 

Pro tip: While registering your business with HMRC, you’ll have the opportunity to subscribe to their Business Help and Education emails. You can tailor these to your needs and receive regular updates to help grow your business. Holvi’s blog is another valuable source of information – subscribe today for weekly business tips.


Step 3: Know your responsibilities as a sole trader

As a sole trader, you’re responsible for 3 important tasks.

  1. Keeping accurate records of all your sales and expenses
  2. Sending a self-assessment tax return every year
  3. Paying income tax on your profits and Class 2 and Class 4 National Insurance

That’s it. Easy, right? With over 3.5 million sole traders across the UK (making up 59% of the UK’s private sector), it’s clear why HMRC has streamlined the process of getting set up and paying taxes as a sole trader.

Still, we hope we’ve added clarity – helping small businesses succeed is our main focus. Complying with these steps will help ensure you operate on the right side of the law. Ultimately, the less contact with HMRC the better. 

Holvi is a financial payment institution that helps sole traders and small business owners manage their finances and stay tax ready all year. Our intuitive tools help you categorise and record expenses, create and send invoices, make payments, and monitor your ins and outs – all in one powerful business account. 


Read more about how Holvi can help your small business.


* Further Reading: HMRC Naming Guidelines (Gov.UK)

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