There are lots of considerations to make, and so, naturally, it’s easy to overlook things. One thing you may have overlooked is whether or not you would benefit from hiring an accountant.

To help you decide, we’ll break down the process of becoming a sole trader, your legal responsibilities, and how an accountant might help.

What is a sole trader?

Let’s start with the basics. A sole trader is just someone who runs their own business as an individual.

There’s no legal distinction between you and the business with this type of structure, so you’re personally liable for anything that happens. This is both good and bad – depending on your circumstances.

Considerations about being a sole trader

On the one hand, your personal assets might be at risk if the business struggles because there’s no distinction beween you and your work. On the other, you get to keep any profits for yourself once you’ve paid income tax and National Insurance. But, you’ll be taxed on them even if you leave them in the business.

It’s relatively easy to get yourself set up as a sole trader, with fewer rules and paperwork than if you were to use a different business structure.

Do I need to set up as a sole trader?

It depends! If you earn less than the Trading Allowance (£1,000) in self-employed income, you might not need to tell HMRC or pay tax on this. You can claim the Trading Allowance even if you have other sources of income, too.

If you do need to set up a sole trader business, make sure you inform HMRC by 5th October in your second tax year. A tax year runs from 6th April to 5th April the following year.

How do I pay tax as a sole trader?

Right, so… You’ve set up as a sole trader and you get more than £1,000 of trading income in a tax year. Now what?

Well, you’ll need to start submitting tax returns to HMRC so you can pay income tax and National Insurance on the profit you make.

What sort of tax return do sole traders need?

This depends on how much you make in total from self-employment and/or property income in a tax year. You’ll normally start by submitting Self Assessment tax returns.

Over time, you might also need to consider Making Tax Digital (MTD) Income Tax. As it continues to roll out, MTD Income Tax will gradually replace Self Assessment for some people.

Those affected will need to keep their income tax records digitally, and share this information with HMRC on a more frequent basis using compliant software.

• You’ll use MTD to report your tax from April 2026 if you earned more than £50,000 as a sole trader and/or rental income in the 2024/25 tax year
• In April 2027, the earnings threshold to start complying reduces to £30,000 earned in the 2025/26 tax year
• From April 2028, it’s £20,000 for the previous tax year

How do I make a tax payment?

HMRC will calculate your tax bill once you submit your return. There are many methods you can use to pay, including HMRC online, Direct Debit or bank transfer. If you work for an employer and have a sole trader business on the side, you may be able to pay your self-employed tax bill through your PAYE tax code.

The deadline to pay is 31st January each year (the same as the deadline to submit your tax return for the year). If your tax bill exceeds £1,000, you’ll need to make ‘Payment on Accounts’ – which essentially splits your tax bill in two halves. The second tax payment deadline is 31st July.

What are my other responsibilities?

You want to . This will be essential in helping you fill out your tax return, and will also help you to claim tax relief without forgetting about any allowable expenses.

Do I need an accountant?

Having an accountant can be extremeley reassuring. They’ll:

• Help you set up processes for keeping clear, up-to-date financial records – known as bookkeeping
• Advise how to optimise any tax reliefs and allowances, and make sure you’re claiming any allowable expenses
• Suggest software you can use for bookkeeping, or for MTD compliance if this applies to you

There are lots of different types of accountancy services available, so take your time to understand exactly what sort of support you need, and make sure your accountant is appropriately qualified.

Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Do Sole Traders Need an Accountant? appeared first on The Cheap Accountants.

Basically, yes – you can run a limited company and be a sole trader at the same time. What is crucial though, is that as well as keeping your personal and business finances separate, you’re really careful to keep the two businesses totally separate. That means two separate entities, not one business that’s been split in two.

That’s not just us being precious about the bookkeeping either, there are actually several very good reasons for keeping a clear divide between your business, including the lurking presence of HMRC.

We’ve prepared this guide to give you an idea of the basics, but it might also be worth chatting to your accountant about your business structure.

Making it clear that you’re not ‘artificially separating’ your businesses for VAT purposes

When a business approaches the VAT registration threshold (which means that turnover is getting near the magic £90,000 mark), it’s required to register for VAT.

Sole traders with multiple businesses work out their turnover for VAT on the basis of all their sole trader incomes combined, because there’s no legal separation between a sole trader and their business. Limited companies are an entity in their own right, so they work out their turnover for VAT separately.

Some business owners might feel tempted to split their business up, thus dividing the turnover, and therefore getting rid of the need to register for VAT. Don’t do it.

Avoiding tax avoidance!

If HMRC get even the slightest whiff that you’re trying to avoid VAT by splitting two businesses in order to stay below the VAT threshold, they’ll be all over you like a rash. This is particularly the case where both businesses are in similar industries.

Recording finances and claiming expenses correctly

On a very practical level – you need to make sure that any expenses you claim (bills, travel costs, broadband etc) are attributed to the right business. You could end up with one heck of an accounting headache otherwise!

For example, say you were to claim all your travel expenses through your sole trader business but use it for your limited company work half the time. HMRC could then disallow half the costs you’d claimed, and hit you with a bill for the additional tax – plus penalties.

Be clear what work each business does

In keeping the businesses separate, make sure you’re really clear what work was carried out by which business.

Perhaps all current clients will go through your sole trader business and from now on new ones will go through the limited company. Or maybe you’re a limited company providing kitchen worktops, and a sole trader who does photography.

Unless you clearly document your invoices, including making it clear which business they belong to, HMRC might decide it’s time for an audit.

Should I switch from being a sole trader to a limited company?

The only way to answer this question is to weigh up the pros and cons of being a sole trader versus incorporating the business to become a limited company.

The way you run your business, its turnover, and your personal circumstances, will all be major factors in deciding how to structure your business. You might also find it useful to chat to an accountant about choosing the most appropriate business structure first.

Operating as a limited company

When it comes to setting up as a limited company there are some distinct advantages and disadvantages to think about. One of the most common considerations is around the idea of risk.

Risk

Some businesses are more financially risky than others, so it might make more sense to register as a company because this limits the extent to which you’re personally liable for business’s debts. If the company goes belly up, you won’t start losing personal assets beyond anything you’ve already put into the company.

Tax efficiency

Depending on the level of turnover, and how you pay yourself from the business, it can sometimes be more tax efficient to operate as a company.

As a director and shareholder you can choose to pay yourself in dividends as well as a salary. The great thing about dividends is their lower tax rate, their exemption from National Insurance, and an additional dividend allowance on top of your personal tax allowance.

It all depends on what else you have going on though, so again – it’s well worth talking to your accountant!

Protecting a name

Registering a limited company is quite a formal process, and the company name must be unique. Once registered, no one else can use it so this can help protect your company’s name as a brand. The only way a sole trader can do a similar thing is if they trademark their name.

Operating as a sole trader

Some people see being a sole trader as a more attractive option because it’s simpler and faster to register the business with HMRC.

Admin

There’s also very little paperwork in setting up as a sole trader. Whereas company directors need to think about the Company Tax Return as well as their own Self Assessment, along with submitting annual accounts.

The main thing you need to do as a sole trader is your Self Assessment tax return.

Paying yourself

You won’t need a PAYE scheme to pay yourself a director’s salary, or a separate business bank account, or to go through the official process of issuing and recording dividends. As a sole trader, you can keep all your own post-tax profits yourself.

Privacy

The details of every limited company, its directors, and the people with significant control of it, must all be recorded publicly on the Companies House website. Sole traders don’t have to do this, so operating in this way can give you a little more privacy.

Liability

The downside of working as a sole trader is that you and your business are legally one and the same. That is to say, you’re personally liable for any business loans and debts the business runs up if things go pear shaped.

Your own assets, like your house, car, or any cash savings, are also at stake. That’s why being a limited company is such a draw because you quite literally have limited liability.

Funding

It’s also often more difficult to raise funding and gain investment as a sole trader, which can make growing your business tricky. Lenders – especially banks – tend to see limited liability companies as less risky and often shy away from sole traders.

Choosing the structure that’s best for your business

If there are very strong reasons for separating different business ventures (and you truly keep them separate) this is generally acceptable. Just remember that HMRC will be on the lookout for businesses who deliberately cherry-pick the best bits from each structure in order to avoid tax.

There are pros and cons to being a sole trader and for limited companies, so do your research, and don’t be afraid to ask questions!

 
Looking for an accountant to help you? Compare accountancy packages to get started.

The post Can I Be a Sole Trader and Operate a Limited Company? appeared first on The Cheap Accountants.

Is a sole trader even allowed to have employees? And if so, do they have to be full-time? We’ll use this article to answer all your questions.

What is a sole trader?

In a nutshell, sole traders are self-employed people who own and run their business without any legal distinction between them and it.

Again, as a sole trader, you are the business, and this has an impact on your responsibilities and the way you pay tax.

The most important thing to understand is that without any kind of legal separation between you and your business, you are personally liable for any debts or other issues that may arise.

Can I employ staff if I’m a sole trader?

Yes! It’s perfectly acceptable to employ people as a sole trader if you could use the extra help. While it’s true that sole traders are solely responsible for their business, there’s no rule saying they have to work alone. The term sole trader just means you’re trading as yourself, under your own name.

Now, when it comes to the length of contract, you can choose to employ people on a permanent, part-time, or freelance basis – but this is where things get a little complicated, which we’ll explain next.

Can a sole trader hire another self-employed person?

Yes. Well, kind of. You can only hire another self-employed person if it’s on an ad hoc (or infrequent) basis, meaning it can’t become a regular thing. They also have to be able to invoice you for their time in the same way that any business would (a potential allowable expense).

The reason you can’t allow this to become a regular thing is because of IR35, an initiative introduced to try and tackle the problem of tax avoidance. Essentially, it helps identify a person’s employment status so as to ensure they’re paying the correct amount of tax and contributions.

A disguised employee is one who has been hired through their own limited company when in reality, the working arrangement is more like permanent employment. This would theoretically benefit the employer, who wouldn’t have to pay National Insurance or other contributions because the ‘self-employed’ person would be off-payroll.

Just make sure that if you do enlist the services of another self-employed person, your relationship with them doesn’t start to resemble that of an employer and an employee.

How do I claim the cost of employing someone if I’m a sole trader?

The cost of employing someone, such as their salary, and employer’s National Insurance and pension contributions, can all be claimed as a business expense, so you’ll put these on your Self Assessment or MTD Income Tax return as normal. Just remember that sole traders can’t employ themselves!

How outsourcing can help your small business

Quite simply, you may not have the time or energy to handle every small thing involved in running a business. Trying to do so may prevent you from dedicating time to more important things, like finding new clients and building your brand.

There may be tasks which require specialist knowledge you just don’t have, such as bookkeeping, or building a website.

Even though you’re a sole trader, that doesn’t mean you have to go it alone!

How do I register as an employer?

You’ll need to register for PAYE with HMRC before the first payday, and you can do this up to 4 weeks in advance.

HMRC will send out your Employer Reference number (also known as a PAYE reference), which you’ll need to make submissions to HMRC telling them about your employees’ wages.

It’s your job to deduct income tax and National Insurance from the wages of eligible employees and pay them on to HMRC on their behalf.

What are my obligations as an employer?

As an employer, your main obligations to an employee of yours are to:

• Provide them with a written statement of work (contract)
• Ensure you’re offering them the minimum or living wage, as appropriate
• Check if you need to auto-enrol them into a workplace pension
• Ensure their working environment is safe
• Offer legal working hours

 
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.

The post Can Sole Traders Hire Someone Else? appeared first on The Cheap Accountants.

After all, you want to make sure you’re on the right track and setting yourself and your business up for success.

When is the right time to incorporate my business?

You’ll know it’s likely the right time when your profits start to grow because it can be more tax-efficient to own a limited company, but this depends on lots of other factors, such as how much you earn, and any other income you may have.

There are other potential benefits too. The nature of a limited company means it’s a legal entity in its own right, separate from its owners, so your personal assets are protected. Legally, you are not your company, and so you can’t be held personally responsible for any company debts or issues that arise.

Essentially, the bigger and more successful your sole trader business, the more likely it is that you would benefit from incorporating it. But of course, this all depends on your own personal circumstances – which is why speaking to an accountant first is so important!

How do I incorporate a limited company?

First things first, in order to set up a limited company, you need to register your business with Companies House. This can be done in a variety of ways: online, through the post using an IN01 form, or via a company formation service such as that offered by an accountant.

Companies House will then notify HMRC on your behalf (or you can opt to register for Corporation Tax at a later date – as long as you do so within 3 months of starting to trade).

You’ll need to supply Companies House with some personal information as part of the incorporation process, including your full name, address, and National Insurance number.

This also extends to anyone else involved in key roles, such as any other company directors or shareholders. If you’re concerned about privacy and don’t want your private address shared on the Companies House register, you may want to consider using a registered office address for the business. Most accountants will offer this as part of their service, but it’s worth double-checking.

Companies House will also want to know the nature of your business, using an SIC code to classify the type of work you’re involved in. You can search for the appropriate SIC code on the Companies House website.

You (as the ‘subscriber’ or original shareholder) will then need to make a statement of lawful purpose and provide a Memorandum of Association. This is basically just a formal agreement between the shareholders agreeing to form the company, along with the Articles of Association (written rules which explain a director’s powers and what the shareholders are entitled to).

What taxes do limited companies pay?

The main tax you need to know about as the owner of a limited company is Corporation Tax.

This is due no later than 9 months and one day after a company’s financial year ends, with the rate of it depending on the taxable profits reported by the company.

• 19% for companies reporting profits of £50,000 or less
• 25% for companies reporting profits of £250,000 and over
• A marginal rate if your profits fall between these two thresholds

It’s important to note that if you fail to pay Corporation Tax on time, you could be made to pay surcharges and interest on the original amount – so don’t fail to pay!

Other taxes you might need to be aware of as the owner and director of a limited company include:

• Dividend Tax, which is paid by shareholders on the dividend payments they receive from the company’s profits (the exact amount of Dividend Tax a shareholder has to pay depends on their total income, and how much of that income is from dividends)
• National Insurance Class 1 (Primary), which an employer deducts from an employee’s wages if they are younger than State Pension age and earn more than the Primary Threshold
• National Insurance Class 1 (Secondary), which an employer has to pay on an employee’s earnings above the Secondary Threshold (£5,000 since April 2025 onwards)

Should I speak to an accountant before I change my sole trader business into an incorporated one?

Well, you could try and go it alone, but unless you’re a qualified accountant yourself (in which case I think you might be lost) there are likely things you don’t know about, and so it’s generally a good idea to seek the help of an expert in the field.

Your own dedicated accountant can ensure you’re making the right decision and assist in the whole process, making things as smooth and easy as possible.

After all, there are strict penalties if you mess up (e.g., failing to pay your Corporation Tax), so why not just cut out the guesswork and all but eliminate the risk?

You’ll also get more sleep.

Visit our accounting support hub for more help, or to ask a free tax question!

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Does your business:

• Have low turnover?
• Have relatively low risk?
• Have a single owner?

If all of these ring true, you will likely want to register as a sole trader rather than a limited company.

If I register as a sole trader, am I then a ‘company?’

The short answer to the question above is ‘no’. This is a common misconception, with people regularly getting these issues confused.

Think about it this way – a ‘sole trader’ is an individual person who is conducting business in their own name.

A company is something different – it is a business that has been registered and ‘incorporated’ as a Limited Company. Legally, it is a separate entity from any person involved in its operation. Its directors and shareholders are legally separate from the company.

As a sole trader, can I adopt a business name?

Not all of us want to run our professional dealings under our own name – we would prefer to operate under a business name. As a sole trader, you can absolutely use a business name, which is also sometimes referred to as a ‘trading name.’

Here is a practical example:

Jane Bloggs has started a small blog writing company. She is happy to conduct all business under her own name, and she issues all invoices and quotes as “Jane Bloggs,” and uses her home address as her business address.

However, if she decides to change things up and go by “Bloggs’ Blogs,” she is still a sole trader, but the full legal name of her business becomes:

• Jane Bloggs trading as Bloggs’ Blogs OR
• Jane Bloggs t/a Bloggs’ Blogs (the ‘t/a’ used here means ‘trading as’)

All of the official documentation she produces (including invoices, quotes, and her professional website) must include one of these 2 options. She may choose to include these on her letterhead, as well as in the footer of her website.

If I register as a sole trader, won’t people think I am a small, home-based business?

While some people might see that you are registered as a sole trader and assume you are a purely solo act, this is not always the actual case. In fact, many sole traders hire other people to work for and with them.

You might be familiar with Sports Direct? Owner and founder Mike Ashley started his wildly successful sports goods chain back in 1982, but he didn’t transfer it from being a sole tradership to a Limited Company until almost 20 years later, by which time he had more than 100 stores!

You can also think of it this way: a business registered to a sole trader is 100% owned by the sole owner. This means that they do not have shareholders, directors, or partners.

By now, you have probably made up your mind about whether or not your business should be conducted under a sole tradership or as a Limited Company. No matter which one you choose, make sure you follow all of the rules and regulations associated and get registered in time for you to start trading.

Setting up as a sole trader is probably easier than you think, you can do it through the government’s website here.

Are you ready to become a sole trader? What’s your main reason for choosing it over a limited company? Please share your thoughts.

The post What is a Sole Trader, and Should I Register as One? appeared first on The Cheap Accountants.

Not convinced? Why not try. 

Delegating to others

In the workplace, delegation and defined roles are common. When we’re freelance, we’re tempted to do it all. Yet where’s the rule book that says we have to?

Try outsourcing. If a task is stressful, time-consuming or just plain boring, outsource it. Yes, it will cost you money, but you can spend the time it would have taken to do that admin or fill out that tax-return on earning money doing what you’re good at (and hopefully enjoy).

Some tasks are best done by others because they require expertise and those experts can do them quicker and better than you can. So, whether the task is web design, social media management, promotion, bookkeeping and accountancy, or anything else you can’t or don’t want to do, consider passing it to someone else.

Learning from others

There’s always something left to learn and always someone who can teach it to you or talk you through it. Formal and informal training, longer courses, mentoring, networking, conferences, workshops, local business consortiums; there’s a whole bunch of ways you can access learning to improve and broaden your skills and increase your contacts.

Subcontracting to others

I’ve written dozens if not hundreds of articles on different ways to manage your time, workload and work/life balance. But even if you’ve followed my sage advice to the letter, there may be times when life throws you a curveball and you end up with an impossible amount of work.

Spookily, I’m there myself right now; usually, I’m a very part-time employee as well as a freelance writer. Over the last few weeks, though, I’ve been a nearly full-time employee because one colleague suffered a completely unpredictable tragedy, and another had to take a fortnight off because of serious illness in her family.

Currently, my curveball solution has resulted in finishing this article at 6.30 in the morning before heading off ‘to work’ – and consuming the number of takeaways and ready meals I’d usually have in a year. An alternative (and, I will admit, better) solution is to hire someone else to help, whether that’s for specific tasks or a few hours/days.

Subcontracting can also be a great idea if you have work you don’t particularly enjoy but want to retain. The pros, cons and cautions of this could be a whole other article, but here, let me just warn you to consider who you hire for how much, and on what terms.

If for instance, you’ve hired someone to write articles for you, you will need to consider how much they will expect to be paid if they’re good – and how much of your time will be taken up editing their work if they’re not so good. Is it still worth it for you in terms of money and stress?

Working with others

Freelancers spend half their time being advised to specialise and become an expert in their niche and the other half being told to add to and broaden their skills and services. It’s true that some skills are often required in tandem. I lost a contract to write the content for a hefty leaflet because a competitor could write the content and design the leaflet using a specific design package that the charity used.

One way to offer additional services (without risking becoming ‘a jack-of-all-trades, but master of none’) is to partner up with someone else who has the skills often required alongside yours. As always, if you do this, ensure the obligations, expectations and financial implications of the partnership are very clear and formalise them with a written contract.

Working around others

Freelancing can be lonely and working at home by yourself isn’t usually the most stimulating of environments. Co-working spaces, cafes, pubs and ‘work dates’ with other freelancers can all help to prevent isolation and provide the socialisation you lack – and the motivation and inspiration that can dwindle when you’re by yourself staring at the same wall every day.

Working by yourself all the time isn’t always the best solution for you, your workload or your business, so why not try one or two of these ways to interact with others?

How do you work with others, and how do you ensure you retain your expertise and motivation? Share your tips!

The post Why Working for Yourself Doesn’t Mean Working by Yourself appeared first on The Cheap Accountants.