What is a sole trader?
A sole trader is self-employed individual who sets up and owns its own business. A sole trader or sole proprietor is a business owned and controlled by one person who takes all the decisions, responsibility and profits from the business they run. You may decide to employ people in your business but you will be the ultimately owner of your business.
How to set up a Sole trader business?
To set up as a sole trader, you need to register for Self Assessment and file a tax return every year.
What taxes do I have to pay as a sole trader?
As a sole trader in the UK, you will be required to pay income tax, Class 2 National Insurance and Class 4 National Insurance if your taxable profits are above a certain level.
Tax and NI Rates for sole traders
|Income Tax Rates 2017/18|
|Band||Taxable profits||Tax Rate|
|Personal allowance||Up to £11,500||0%|
|Basic rate||£11,501 to £45,000||20%|
|High rate||£45,001 to £150,000||40%|
|Additional rate||Over £150,000||45%|
|Class 2 Nation Insurance Rates 2017/18|
|Band||Taxable profits||NI payable|
|Small Profits Threshold (SPT)||Below 6,025 per year||0|
|Above SPT||Above £6,025||£2.85 per week|
|Class 4 Nation Insurance Rates 2017/18|
|Band||Taxable profits||NI Rate|
|Lower Profits Limit (LPL)||Below £8,164 per year||0%|
|LPL to Upper Profits Limit (UPL)||£8,164 to £45,000||9%|
|Above UPL||Above £45,000||2%|
As a sole trader, you are required to prepare and submit your tax self assessment tax return and pay any tax (if any) to HMRC by 31 January following the end of the tax year.
For example, for the tax year 2017/18 (Period: 6 April 2017 to 5 April 2018), you will be required submit your tax return and pay your tax liability (if any) by 31 January 2019.
Being a sole trader, you have certain responsibilities such as: