How to set up as a sole trader in the UK

Team Nomi

Jul 03, 2026
7 minutes read

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Setting up as a sole trader is one of the simplest ways to start a business in the UK. It does not involve complicated paperwork or the need to register a limited company, which is why many freelancers, small business owners, and start-ups choose this route when they first begin.

If you want to know how to set up as a sole trader, the process includes choosing a business name, registering with HMRC as self-employed, keeping proper financial records, and meeting your tax responsibilities. Each step is simple, but it is important to complete them correctly to avoid issues later.

In this guide, we will explain every step in detail, so you can get started properly and stay fully compliant from day one.

What is a sole trader?

A sole trader is a self-employed individual who owns and runs a business on their own. You keep all the profits after tax, but you are also personally responsible for any business debts.

It is the simplest business structure in the UK, as there is no need to register with Companies House. You only need to register with HM Revenue and Customs (HMRC) and report your income through a Self Assessment tax return.

Step-by-Step: How to set up as a sole trader

If you want to understand how to set up as a sole trader, follow these key steps:

1. Check if being a sole trader is right for you

Before you begin, make sure this structure suits your situation. A sole trader is best if you want a simple setup, full control, and fewer formalities. However, you should also understand that you are personally responsible for any business debts.

This step is important because many people start without thinking about liability or future growth. If you plan to expand quickly or take on high risk, you may want to review your options first.

2. Choose your business name

You can trade under:

• • Your own name (e.g., John Smith)
  • A business name (e.g. JS Consulting)

Make sure:

• • The name is not misleading
  • It does not copy an existing business
  • It does not include restricted words

Choosing the right name helps build trust and makes your business look more professional from day one.

3. Understand what records you must keep

As soon as you start trading, you must keep proper records of:

• • Income (sales, payments received)
  • Expenses (costs, purchases, bills)
  • Invoices and receipts

This is not optional. These records are required to calculate your profit or loss for your Self Assessment tax return.

Poor record-keeping is one of the main reasons small businesses face penalties, so it is best to set this up properly from the start.

4. Register as a sole trader with HMRC

This is the most important step in setting up as a sole trader.

You need to register with HM Revenue and Customs (HMRC) for Self Assessment.

You must register if:

• • You earn more than £1,000 in a tax year
  • You need to prove you are self-employed

Deadline:

• • Register by 5 October, after the end of the tax year you started working

Once registered:

• • You will receive a Unique Taxpayer Reference (UTR)
  • You will submit tax returns every year

Registration is free and usually done online.

5. Check what taxes apply to you

After registration, you need to understand your tax responsibilities.

You may need to pay:

• • Income Tax on your profits
  • Class 2 and Class 4 National Insurance
  • VAT (if your turnover exceeds the threshold)

Different businesses may have different rules, so it is important to check what applies to your work.

6. Plan for your tax bill

Many new sole traders struggle because they do not plan for tax.

You should:

• • Set aside money regularly (e.g., 20-30% of income)
  • Estimate your taxes in advance
  • Keep track of deadlines

You will usually pay tax twice a year through payments on account. Planning early avoids large, unexpected bills.

7. Help and ongoing support

You do not have to do everything alone.

You can:

• • Work with an accountant
  • Use accounting software
  • Follow HMRC guidance and updates

Getting the right support in place can save time, reduce errors, and keep your business on track as it grows. Many business owners and accountants now use platforms like Nomi, which combine accounting, tax, and client management tools in one place, making it easier to stay organised and meet your responsibilities without added stress.

Taxes and responsibilities you must know

When learning how to set up as a sole trader, understanding your tax duties is essential.

As a sole trader, you must:

• • Submit a Self Assessment tax return each year
  • Pay Income Tax on your profits
  • Pay National Insurance contributions

You may also need to register for VAT if your turnover exceeds the threshold.

One of the biggest mistakes people make when they set up as a sole trader is not planning for tax payments. It is wise to set aside money regularly so you are not caught out by a large bill. 

You are also responsible for keeping accurate financial records. This includes invoices, receipts, and bank statements. Good record-keeping supports smooth sole trader registration and ongoing compliance.

Common mistakes to avoid when setting up

Getting the basics right from the start is important, as small mistakes can lead to bigger issues later. Here are some common errors you should avoid:

• • Delaying registration with HMRC
  • Not keeping proper financial records
  • Mixing personal and business finances
  • Ignoring tax deadlines
  • Choosing a business name without checking availability

These mistakes can lead to penalties or unnecessary costs. Taking the time to complete your sole trader registration properly will help you build a strong foundation.

Need help managing your self-assessment?

Becoming  self-employed in the UK, a sole trader, accountant, or bookkeeper, staying on top of tax records and submissions can quickly become time-consuming without the right system in place.

We provide self-assessment software and bookkeeping software, designed to help you manage income, expenses, and tax records in one place. It simplifies the process of preparing and submitting your self-assessment tax return while keeping everything organised and HMRC-recognised.

Start your free trial today and explore how Nomi can support your tax filing process.

Disclaimer: This blog is for general informational purposes only and does not constitute legal, tax, or financial advice. Please consult a qualified professional or HM Revenue & Customs for advice related to your circumstances.

Frequently asked questions

1. How much does it cost to set up a sole trader business in the UK?
Ans. It usually costs nothing to set up as a sole trader. You only start paying tax and National Insurance once you begin making profits.

2. Do I need to register with HMRC if I am a sole trader?
Ans. Yes, you must register with HM Revenue and Customs for Self Assessment if you earn more than £1,000 in a tax year.

3. How do I start a sole trader business in the UK?
Ans. You start by choosing a business name (if needed), registering as a sole trader with HMRC, and keeping records of your income and expenses.

4. Do sole traders pay taxes?
Ans. Yes, sole traders pay Income Tax and National Insurance on their profits through Self Assessment.

5. Do sole traders need a separate bank account?
Ans. No, it is not required by law, but having a separate business bank account is strongly recommended for clear financial tracking.

6. How much tax do I pay as a sole trader?
Ans. You pay Income Tax based on your profit level plus National Insurance contributions, and the exact amount depends on how much you earn each year.