A Freelancer's Guide to Setting up as a Sole Trader

Freelancers are generally considered sole traders (as they're known here in the UK), a group of over 3,000,000 people.

The fact that there are so many people operating as sole traders is good news for you, as it means that the market is now already accustomed to hiring and working in this way.

There will be plenty of clients out there who’ll need the service you offer, and will gladly pay the price you ask.

You just need to find the right clients at the right time and show them that you can provide the service they're looking for.

Step 1: Do some work and get paid for it

The first step is that you need to prove that you have a business.

And proof of income and outgoings. 

It's recommended that you have a business bank account where you pay for all your business expenses on.

Step 2: Register with HMRC for self-assessment

This tells the government that you've registered, and are eligible to pay tax and national insurance. 

Self-assessment means you’re going to assess how much you should be taxed.

Before you register there are a few things you’ll need handy:

• A business name and description
• The date you started trading
• Your email address
• NI number
• And some personal details such as date of birth, address, etc

If you DON'T have a UTR go here

If you DO have a UTR then try this link

This will now take you through a set of steps in order to register yourself as a sole trader and set you up with a Government Gateway account. (If you already have one then use that).

Step 3: Keep good records and submit your tax form on time

• Deadline for submitting your tax return is January 31st
• Your tax return should include the dates from April 6th through to April 5th of the following year. For example, the tax year ending 05/04/2020 will need to be submitted by 31/01/2021
• If you didn’t earn more than £11,500 then you will not have to pay tax

“The very latest you can register as a sole trader is by the 5th of October of your 2nd trading year.”

Step 4: Important info to safely save on your hard drive

• Your Government Gateway Account login details
• Your UTR (Unique Tax Reference) Number (issued when you registered as self-employed)
• The PAYE Reference Number of your Employer at your normal job (this can be found on your payslip)
• Your total income across each of your self-employed activities in that given tax year
• Receipts of your business expenses
• The total amount of money you donated to charity in a given year
• The total amount of money you repaid in Student Loan

An important thing to keep in mind is that the very latest you can register as a sole trader is by the 5th of October of your 2nd trading year.

And remember you will only be paying tax according to your profit, not your turnover, so you’ll need to deduct your business expenses.