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Setting up as a sole trader – Everything you need to know about being Self Employed in the UK

setting up as a sole trader

With the rising costs in childcare and everyday life in general, households are finding it hard to have that perfect balance of work, childcare and income. This has resulted in many families having to work around each other, getting extra jobs or working every ounce of overtime available. This is one reason many people are opting to become self-employed and setting up as a sole trader which enables them to work around their family life and still be able to bring something into the household income.

There has been a huge rise in people, especially mothers, trying to find a source of self-employed income whether it be in more traditional roles such as childminding, ironing, cleaning, dog walking and book keeping, in selling roles such as crafts, direct sales and drop shipping or online roles such as audio transcription, web search evaluation and blogging.

A lot of people get scared when the phrase “registering as self-employed” comes into the equation. Dealing with HMRC really isn’t the minefield that some people expect and when it comes to registering and sending in your income tax returns, I don’t think there is anything easier.

Registering that you are a Sole Trader with HMRC

It can be done within 10 minutes online via their website or over the phone on 0300 200 3310; I do recommend doing it online, it is a lot quicker. Then within 10 days you will receive a confirmation letter and you are ready to go. Another reason to contact HMRC as soon as you get the chance is that you need to register for UTR which is a unique number you will use for all self employed tax purposes going forward.

Keeping records for HMRC

You need to keep a record of everything business-related that comes in and out; a simple excel spreadsheet can keep track all your income/outgoings. Make sure you keep all invoices and receipts that are business related as these will be used as proof should HMRC request it after you do your annual tax return. Digital invoices/receipts are easy to keep a record of, ensure they are backed up and a dedicated file for your paperwork (paper copies) should ensure they are also kept safe.

If you are looking to use something a bit more advanced than spreadsheets which will make doing your tax return FAR easier I recommend using FreeAgent which lets you mark your income and expenses as the year goes on and then you can submit it through the software straight to HMRC! It’s a HUGE time saver and even though it costs money you would, of course, include it as a business expense. It doesn’t matter if you make your money from mystery shopping or using zero spread brokers, everything needs to be declared with HMRC.

Self Employed Expenses

Depending on your business, certain things can be classed as expenses which are deducted from your annual gross earnings before any tax is calculated. You only pay tax on your profit so income – outgoings = profit.

What can be classed as an expense? Well, that all depends on the business you run. If you work from home then you can take in to account things like utilities (electricity, heating etc). HMRC have a simple way of taking that into account based on the hours you work from home – for example, working 25 hours a month from home means you can deduct a flat rate of £10 a month as your expenses.

Expenses can be rather confusing, there is plenty of information on the HMRC website or via the FreeAgent website but if you are still confused then it is always a good idea to give them a ring to clarify anything or seek the advice of an accountant (at a cost).

View the full image at FreeAgent

Self Employed Insurance

Being your own boss comes with attractive perks. Also, there are additional responsibilities to be fulfilled as compared to when you are working for someone else. Know the pros and cons of being self-employed so that you may pre-empt disturbances to your professional life.

You don’t get paid if you don’t work, and you don’t have an employer to fall back on for insurance. You have to pay for the cover. Self-employed tradesmen need insurance to protect their business from costs that may arise due to unforeseen situations. You may get injured or fall sick. You may not be able to work for a prolonged period. When you are on your own, this means a loss of income coupled with medical expenses. You may qualify for state benefits, but those may not be enough to cover all the expenses that you will likely incur.

Choose a self-employed insurance provider that understands the risks involved in your specific trade. Generic cover can leave you vulnerable to expenses from events not covered. Tradesman Saver provides insurance tailored to meet your needs. Check out the exhaustive list of trades covered by Tradesman Saver. You can easily create a bespoke policy and get instant cover from the moment you pay. Public liability, financial loss, products liability, employers liability, professional indemnity, business content and personal accident are covers you can choose from.

A well-rounded insurance policy for self-employed tradesmen offers many benefits. It protects you from financial claims that your employees may bring against you, or a lawsuit that a client may file to recover costs of damage caused by your employee.

There are simply too many situations that can lead to a claim against you. Law firms attract clients with an offer of accepting fees only if they win a claim for the client. This encourages people to file claims. They have nothing to lose. But, you do. At the very least, you lose time and money. And, there’s always the risk of the plaintiff suing you successfully. Self-employed insurance guards against such risks.

Doing your first HMRC Self Assessment

setting up as a sole trader tax return

Each year, everyone who is registered as self-employed is required to fill in a self-assessment form; whether you have made profit or not. HMRC will send you a reminder notice which will prompt you to complete this either online, via telephone or through the post – again I opt for online as it is so quick and simple. This is where good record keeping comes in handy as you will need to know how much your income and outgoings were over the tax year. If you are also employed (an employee for a company) you will also need to include your earnings for the same year from all paid jobs.

Once your assessment is complete you will be given a figure that is your payable tax and national insurance for that year. If you do not complete your self-assessment then you will receive a fine for not doing so. Again, if you have any doubts or questions then give HMRC a call. They are extremely helpful and it is best to get it sorted rather than ignoring something you don’t understand.

Paying Income Tax and National Insurance

Once your self-assessment is complete you will receive a figure for your tax and national insurance contributions.

Income tax is paid on all earnings over the personal allowance of £12,500 (2019-2020), the basic rate is 20% but higher rates are payable depending on your total income – see current rates and allowances for more information.

National Insurance contributions are paid at a lower earnings rate than Income Tax, if you are making a profit of £6365 (2019/2020) or more a year then you will be required to pay Class 2 NI contributions.

If you earn more than £6365 you will pay £3 a week (£156 a year).

If your profits are more than £8632 then you will pay Class 4 NI as well which is 9% on profits from £8632 and £50,000 in 2019/2020.

If you earn under the threshold then you will be issued with an exemption certificate, this means that you do not have to make any contributions but this can lead to gaps of contributions in your record which can ultimately harm your entitlement to a state pension and other benefits such as maternity pay or jobseekers allowance.

To ensure you don’t have any gaps in your national insurance contributions you can do one of two things.

  1. Child benefit: If you receive child benefit for a child under the age of 12 you should automatically receive credits towards your state pension (these credits do not count towards any other work related benefits).
  2. Class 3 – Voluntary contributions: You can pay these if you are not eligible to pay Class 2 or to fill any gaps that might have occurred in your record, again these only credit towards your state pension.

What do you do when you are self employed and employed?

This is a question that gets asked a lot online. For a lot of people who are looking to go self-employed and have decided it’s the right thing for them to do they usually begin their sole trader business or freelance career they more often than not do it alongside being in full time employment.

All this means is that when it comes to filling in your tax return you have the option to tick a box that lets you pay your tax back over 12 months via your PAYE from your main job as long as the amount of tax you owe from your self employed work is under £3000.

How can registering as a sole trader affect Child Tax Credits, Working Tax Credits, Housing Benefit, Council Tax Benefit etc.

This question crops up time and time again, “If I become self-employed with I still be entitled to x and y and z benefit”. The simple answer is: it depends on your circumstances. The only people who can really tell you how going self-employed will effect anything that you currently claim (child tax credits, working tax credits, housing benefit, council tax benefit etc) are the people who issue the benefits or the Citizen’s Advice Bureau (CAB). They will have the time to go through each scenario with you to tell you the outcome and are the best people to consult if you rely on any of these benefits; especially with the Universal Credit coming into effect around the country. There are a couple of websites where you can get a rough idea of entitlements if you are wanting to crunch a few numbers, these are and the Tax Credit Calculator.

The reason it is so hard for anyone to give you a straight answer to this is because it can vary so much depending on your personal circumstances such as number of children, relationship status, other incomes and even whereabouts in the country you are; and if you choose a self-employment role that has a fluctuating income, such as direct sales, then it makes it even harder to just tell you that you will get xx benefits.

What about Holiday Pay, Statutory Sick Pay, Statutory Maternity Pay, Paternity Pay?

One thing you need to realise about becoming self-employed is that you are not automatically entitled to any of these benefits. These are employed benefits and only Maternity/Paternity Allowance is payable to those who qualify and have been paying Class 2 NI contributions. You need to include the cost of these in your service costs or put away existing earnings to cover you should you need to take any time off.

When you register as self-employed it is worth thinking about your future plans for a child. When I became self-employed I volunteered to pay Class 2 national insurance contributions, despite being below the threshold for NI for my first year of self-employment. Class 2 national insurances are just £2.80 per week at present and this is a fantastic way to guarantee that you will be eligible for maternity allowance when you require it. 

Maternity allowance is available to all self-employed individuals who have made the necessary amount of contributions. The weekly payment, which you can receive for 39 weeks, is up to £139.58 (2015/6 tax year). The full weekly amount will automatically be awarded to anyone self-employed who has made the necessary contributions during the test period. Maternity allowance can be applied for as soon as you reach 26 weeks pregnant and you can receive it from your 29th week of pregnancy, paid in 2 or 4 weekly increments. You must make contributions for at least 26 weeks of the qualifying 66 week test period before the week that your baby is born. If you have recently found out that you are pregnant, or you are planning to have a baby soon, then there is still time to make enough voluntary class 2 contributions to be eligible for the full weekly amount. You can even call HMRC in order to make a payment to ensure that your test period is covered.

Is additional funding available to the self employed?

A few years ago it was really easy to grab a grant, or some funding to start your own business. You could approach your local council or job centre with a business plan and they would, basically, hand you some money. Unfortunately a lot of funding for new businesses has dried up but it hasn’t all completely gone. If you have an idea for a new business there are still schemes available to help get you off to a good start – they may not be lump sums of cash but they are incentives. Things like discounted rental rates for town centre property, free business advice or business courses. Availability really does depend on each individual council and how they spend the funding they are given; you can check the governments Business Finance Support Finder to see if there is any help local to you.

Getting finance when you are self employed

Over the last few years it has become much harder for people who are self-employed to obtain finance, whether that is in the form of a new car, mobile contract or mortgage. A lot of companies,  especially mortgage companies, require two-three years of accounts to show your earnings and prove that you are able to meet the payments; which is another reason to keep on top with your records. If you cannot prove your earnings then you are really unlikely to get any real finance beyond mobile contracts.

If you are looking at getting a mortgage then using a mortgage broker is probably the best way of finding a mortgage that will meet your needs as they will do all the leg work. A few things such as making sure you are on the electoral register, having a small amount of credit – such as a credit card you pay off fully each month, and a good stint in your current property should also help with getting finance as companies like to see that you are stable; not moving every 6 months and maxed out in credit.

Other things to consider before going self employed

setting up as a sold trader things to consider

Don’t go too fast too soon

It can be very easy to get carried away when you first start out as you want to be all things to all people. It’s important you take things slowly and keep track of where you are spending not only your time but also your money. It’s easy for you to get sidetracked when you are starting out a new business as you try and find which way to take it and during that period it’s very easy to get influenced and lose your original focus so make sure you write down your original aims for the business and stick to them as much as you can.

Lack of Structure when Self Employed

Working a traditional job is annoying when you have to be at your desk by nine in the morning. But it’s also great because you have to be at your desk at nine in the morning. This means you have a definite clocking in and clocking out time and once you’re done – you’re done. 

Being self-employed means that you set your own hours and unfortunately, it can be hard to stick to a proper schedule. Many people find themselves not working when they should be, or being unable to switch off long after they should’ve stopped. 

Try to keep tabs on your money

Money will be one of your most valuable assets in the early months. Unless you are starting with a pre-existing audience it can be very hard to gain traction. I found at the start I was overly keen to throw money at things to avoid having to do them myself. That would be anything from writing promotional material to paying someone £250 a month to do my social media when the reality is that if I spent a day or two learning how to do the stuff myself I could have saved a LOT of money.

Talk to your peers

This can be easier said than done but speaking to someone who has been through this journey before can really help keep your reality in check. One such website I used was UKBusinessForum where I not only made a great number of contacts who were in the same boat as myself but I was also able to connect with local UK businesses who could offer me services that could help me. I found out pretty quickly that if you ask for help from people who are working in the same niche as yourself 9 times out of 10 they will do!

When working in a ‘normal’ job you have the benefit of having other people around you who are all in same boat. So if something has upset you, chances are you’ve got someone to go and vent to. Being self-employed often means you don’t have this luxury and often have to go it alone. 

Although many people find this is fine because they have supportive friends and family, a lot of people struggle with the lack of immediate support available to them. It can be hard to get motivated when there’s no one around to encourage you. 


This is one of the biggest downsides to being self-employed. When you work with other people, you motivate each other – whether you’re aware of it or not. You are motivated because you are in your place of work and you are motivated because there’s often a senior around who will check up to make sure you’re working well. 

Working on your own means you lose out on all of this. Especially if you’re going to be working from home. It takes real motivation and dedication to force yourself to work when you know there’s something else that really needs doing, or something on TV that you really want to watch. 

For a lot of self employed people it’s the direction each day that they miss.

When working a traditional job, you often have regular meetings with your manager or supervisor to ensure that you’re still working the way you should be. A traditional job will ensure that you’re working in a direction to achieve a certain thing. 

Being self-employed means that you lose out on this and it’s up to you to make sure that you’re working to deadlines, meeting targets and achieving goals. Without someone encouraging this and supporting you it can be hard to maintain the direction that you want to move in. 

Accept that you WILL make mistakes

A lot of people don’t want to hear this and are adamant at the start that they won’t make the same mistakes as their predictors but the reality is that its human nature to learn by doing. I honestly don’t know anyone that runs a business either offline or online that hasn’t made mistakes along their journey and if anything it’s better to make them at the very start than a few years into it when more money is at risk.

Self Care is still important

Working in a traditional job often means that you have structured breaks. This is good but a lot of the time you’re having more breaks than you realise. Think of all the times that you stop for a chat with your colleagues.

Being self-employed means you don’t have any of this. You don’t have co-workers that you can chat to and so often you end up working for longer periods of time. This can be incredibly de-motivational and so remember to take regular breaks, even if it’s just to make a cup of tea or go for a lap around the house. 

At the end of the day, becoming self-employed is relatively simple but if there is anything about the process you find confusing then, as mentioned in this post already, seek advice from either HMRC, CAB or a qualified accountant who can advise you where needed.

36 thoughts on “Setting up as a sole trader – Everything you need to know about being Self Employed in the UK”


  2. GREAT post and so informative! We are looking into developing a self employed business and didn’t have a clue where to start. This covers everything, thank you so much!

  3. What a great post, thank you 🙂 I would love to be self employed and it is something I am looking into now. Pinned so I can come back in a few weeks if I do start working for myself 🙂

  4. I need to save this and come back to it because it’s so much information.

    I started my blog but I am not making any money out of it yet. Should I register now?
    Also, I do some freelancing work on Fiverr and Freelancer and have some income coming in from Etsy from time to time.
    How do these play into my taxes?
    Should I also mention I am a student?

    I am so confused.

    1. Hi Ana. Yes you need to be registered as Self Employed with HMRC. Just follow the steps mentioned above, it only takes a few minutes. You may not earn enough to actually pay tax on what you earn from home but you still need to tell HMRC that you are earning it!

      1. Thanks so much! This really helps.

        What if I am also working part time, so I am actually hired by someone else and getting pay slips. Won’t that conflict with my “Self Employed” status?

        I really appreciate you taking the time to reply.

        1. Hi Ana

          No it won’t conflict at all.

          I work full time as well as being self employed the two things are entirely separate

          I get taxed in my full time job as normal and for my self employed work I just submit my tax return as normal that covers all the work I do outside of my main job (hope that makes sense!).

            1. Yes

              At the end of the tax year you submit the number on your P60 that says what you have earned from your full time job AND the amount you have made from self employed work.

              You should REALLY click on the forum option at the top and come over and join in. We are the UKs largest community website dedicated to earning from home so have forum just sat there with 81,000+ posts all from people who are self employed and can answer any question you have!!!!

            2. Very useful post Jon. I am currently self employed, there really is a lot to cover if you are thinking of starting out on your own. This will no doubt help many who are thinking of taking the plunge.
              Thanks for sharing 🙂

            3. Oh goodness I know I am a time bomb when it comes to all this and I need to study this post in detail – thanks for sharing your knowledge.

            4. This is so amazingly perfect! Thank you so much for pulling this all together. I’ve only become self-employed this year and am bookmarking this post. I’m so scared about knowing what I’m doing in regards to taxes and keeping track of expenses etc. Fab post! x

            5. This is a brilliant post – especially the note at the bottom about being self employed and maternity pay (very relevant to me!). I’ve been registered as self employed before so I know the process but it never hurts to brush up – it’s SO important to get it right, isn’t it? Thank you.

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            9. Hi! are all surveys ask personal questions for example what do you own in your household. I was thinking that more about my opinion about products on market.ThanX

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