If you have made the decision to set-up as a sole trader, you will be running your own business as an individual and are therefore self-employed. You will need to take the following steps to ensure you are paying the correct tax and National Insurance contributions:
- Register as self-employed with HM Revenue and Customs (HMRC)
It is recommended that you register as self-employed with HMRC by 5 October within your business’ second tax year. For example, if you start your business anytime during the 2017/2018 tax year, you will need to register with HMRC by 5 October 2018.
See also: How to set-up a business partnership
There are three different ways to register with HMRC depending on your circumstances:
- Going self-employed for the first time and have NOT previously completed a tax return
If this is you, you should register your new business online with HMRC here
- Going self-employed for the first time and HAVE previously completed a tax return
If this is you, you must register as self-employed and for Class 2 National Insurance by completing form CWF1
- You have been registered as a sole trader previously
If you have previously been registered as self-employed and are looking to re-register, you should also complete form CWF1
- Register for VAT
Despite registering as self-employed, you will not automatically be registered for Value Added Tax (VAT).
See also: How to register your business for VAT
You will have to register for VAT if your turnover reaches, or is expected to reach the current VAT registration threshold of £85,000 (from 1st April 2017), during any 12-month period.
When you register for VAT you will need to charge VAT to all your customers and you will also be able to claim back the VAT you have paid for work-related costs.