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Becoming a Sole Trader in the UK: a Step by Step Guide

Why did we decide to write on this: every independent contractor or freelancer needs to be able to legally invoice a company. To do so, the most common options are setting up your sole trader status or your very own LLC – which we’ll cover in our next article.

1- What you’ll need

HMRC (HM Revenue and Customs) made it quite easy to take the sole trader status. You will need:

  • A National Insurance Number
  • A UK address
  • Your personal information (current address, phone number etc…)
  • 15 minutes of your time

2 – Registrating on HMRC’s website

Start by going to the HMRC (HM Revenue & Customs) website and creating a personal tax account:

Let’s start

Select the “Individual Government Gateway account” and fill in the information required.

You will be given a User ID and will need to create a password.

IMPORTANT: Make a note of these as they won’t be given again.

Once you have registered on the HMRC website, click on the following link and complete the Self-Assessment registration form:

Self-Assesment registration

The purpose of this form is to obtain your Unique Tax Payer reference (UTR). This will be sent to you in a letter several working days after completing the form. In short, this number will not only prove that you’re entitled to invoice a customer but will also enable HMRC to trace your commercial activity and be sure that you will pay your taxes.

Most of the information required is fairly straightforward. However, these more unusual questions should be answered as follows:

  • Name of businessyour full name
  • What sort of self-employed work do you do? Corporate Consulting
  • Date the above period of self-employment started: the date you completed your first project as a freelancer
  • Capacity in which you are completing this form: Sole Trader

Once you have submitted the form, you must then wait until you receive your UTR in the post – so please do not give a fake address. You can then access the Government Gateway’s platform.

Login to your government gateway using your User ID and password and select the self-assessment link. Enter your UTR and follow the instructions.

You will reach a point where you will need to wait for an activation code. This will also be sent to you in the post.

Once this has arrived, return to the self-assessment link and complete the process. You have now obtained your sole trader status!

3 – What next?

Congratulations! You’ve overcome one of the biggest psychological barriers that exist when starting a career as a freelancer.

You can immediately start working on projects. The best ways to get started is first to make a public announcement on your LinkedIn that you just decided to pursue a new move in your career.


But that’s not enough.

You should also say what you’re doing and how you can best help professionals:


Once again, this is not enough.

Chance is that – if you already have an established professional network – this could bring you 2/3 clients, which is good to get started but definitely not enough in the long run.

As a freelancer, you’ll need to be proactive, you’ll need to find projects yourself. Online marketplaces are a great way to that, and you should try to establish good relationships with the one that resembles you the most.

4 – The most difficult part: paying your taxes

Is it though? The sole trader status has many advantages, and one of the firsts that comes to my mind is that it’s very “tax-friendly”.

You won’t have to pay “regular” taxes just like your parents do on their income.

In fact, the only taxes you have to pay will be regarding your health insurance.

Paiement of National Insurance depends on the amount you expect to earn.

tax as a sole trader

In other words, if your profits do not exceed £5,965, you will not have to spend a penny on taxes!

That’s why the sole trader status is highly recommended for part-time freelancers or newcomers.

Between £6,000 and £8,059 you will need to pay £3 a week. From £8,060 up to £11k you will need to pay both Class 2 and Class 4 (9% of your annual profits).

Bonus: Class 2 National Insurance will disappear in 2018 ! Hence, if your profits are inferior to £8,060 you won’t have to pay anything 😉

5 – VAT Registration

Most sole traders do not to register for VAT. In fact, if your turnover do not excess the VAT threshold (currently £85,000 a year), you won’t have to register for VAT.

When you’re VAT registered, you charge your customers VAT on VAT-able goods and pay it to HMRC. In turn, you can reclaim the VAT you pay on goods and services you buy.

But then again, if you plan on making – or hoping – to make that much money, you should definitely think of setting up your own LLC.

Another perk of the sole trader status: you can start by working as a sole trader before deciding to switch to a LLC, which you can do at any time.

Should you have any questions on this matter, feel free to get in touch with Cameron, he’ll be glad to walk you through the process.

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