Being classed as a sole trader means you are working for yourself and self-employed. You will need to inform HM Revenue and Customs and follow the rules for running a business.
SELF EMPLOYMENT: In fact, there are many different factors that would make you self-employed when you work for yourself.
You need to understand what counts as trading and what you have to do. One of the first things you must do is register for Self Assessment.
At this point you might be asking yourself 'why should I go self-employed'? People have different reasons to start working for themselves for the first time.
For some, the best part is you get to 'be your own boss'. In most cases that means you can be more flexible when and how you work.
Whereas others may see setting up a business as an opportunity to command a higher salary. Of course, it usually depends on what type of industry you start working in.
There are downsides to working for yourself too. But this guide will help those who are 'going it alone' follow the rules of self-employment.
Those who are going self-employed have several important things to do. The first step is informing HMRC that you are self-employed for your tax obligations.
The next step is choosing a business structure. This will have an impact on your paperwork responsibilities and business insurance.
As a rule you are going self-employed and working for yourself if you:
Note: Most of these situations also apply to those who own a limited company. This includes those where HMRC do not class you as self-employed. In this case you would be an owner and an employee of your company.
In some cases, you can be both self-employed and employed - at the same time. So for example, working for an employer in the day time and running your own business afterwards would meet the criteria.
If you are selling goods or services you could get classed as a trader. In this case: If you are trading, you are self-employed. As a rule you will be trading if you:
As a rule, selling a few unwanted items on an occasional basis, and not planning to make a profit, means you are not trading. But, you cannot use losses from a hobby to reduce your tax bill.
Note: HM Revenue and Customs website has a facility for checking your employment status for tax purposes.
You may need to register for and file your Self Assessment tax return when you start working for yourself as a self-employed person. This ensures you pay the correct National Insurance and Income Tax.
You must register for Self Assessment if any of these apply to your situation:
You would still be able to make voluntary Class 2 National Insurance payments even if you do not register. Doing so would help to make sure you get the full State Pension.
Note: As a sole trader, you would also need to follow all the rules for running and naming a business venture.
Several other business structures differ to those of being an individual sole trader. For example, you might choose to:
A guide to Working for Yourself in Self-employment