A sole trader is somebody who is self employed or works for themselves. There is personal risk involved in being a sole trader. If your business fails then the personal risk is yours. If you are setting up a business with little personal risk such as an online business then the risk is minimal. If you are setting up a business where you are likely to build up big debts then you will need to consider the personal risk. In this situation forming a limited company may be the best option.
Benefits of becoming a sole trader
There are a lot more administrative tasks involved in running a limited company which includes registering your company at companies house. Becoming a sole trader is quick and easy to set up and generally involves no cost. If you wish to become a limited company later on then you can change from a sole trader to a limited company. This is generally a good idea when you employ people.
How to register as sole trader
To register as a sole trader, simply register with HMRC which is important to avoid fines for not paying tax. This is also important if you are running your business part time or on a casual basis. Some entrepreneurs start their new business on a part time basis until their business is performing well. You may be working full time and running your business part-time, therefore it is still important to register your business with HMRC as you will be still be self employed for some of your work.
The quickest way to register as self employed is to use the Self Assessment and National Insurance contributions registration form online. Make sure you have the following information;
- Date of Birth
- Telephone number
- National Insurance number
- Start Date of Business
You can also download and complete an HMRC form around becoming self employed and registering for National insurance contributions.