Registering as a sole trader
What is a sole trader? It simply means being self-employed. Being a sole trader business involves some personal financial risk. Sole traders must pay their debts if their business fails. If you’re thinking of starting up a low-cost business (ie one that is unlikely by its nature to build up big debts), you probably needn’t worry too much.
However, if you’re likely to build up significant business debts, it might be more advisable to have the personal financial protection offered by forming a limited company (ie 'incorporation').
Advantages of being a sole trader
Setting up and running a limited company requires more administrative effort than being a sole trader, plus you (or your agent) must register your new company at Companies House. Setting up a sole trader is quick, easy and involves no cost while preparing sole trader accounts can be simpler. Sole traders can employ people and become a limited company (‘incorporate’) later on, should they wish.
Although anyone can become a sole trader, you might need a license or permit from your local authority for the type of business you plan to set up. Seek advice if you’re unsure. Overall it is a good choice if you make it, but you have to be prepared for everything that you will need to do as a sole trader. There are a lot of responsibilities that will be only your job to do. The only risk that you are taking as a sole trader is that you must pay your debts in case your business should fail. However, if you are confident in your business that it will succeed, then go on. Of course, everyone is confident about their business idea, but sometimes things just cannot work out the way that you imagined to.
In case that you are not taking a lot of money from the bank to start up your business, then as mentioned, you don't need to worry much about the debt. That's why it is always smarter decision to start out small, especially when it is your first time running a business. This will give you an idea about what are your responsibilities and if you fail, there is not much damage that you need to suffer. You can easily stand up on your feet again and try a new business, maybe the next time you will have more luck.
Register as a sole trader
You must let HM Revenue & Customs (HMRC) know you have become a sole trader/self-employed as soon as possible – otherwise, you could be fined £100 for not registering your sole trader business.
The easiest way is to call the HMRC ‘Helpline for the Newly Self-Employed’ on 0845 915 4515. The operator will ask you: your name; date of birth; address; telephone number; National Insurance number; start date; name and type of business; and whether you’re a sole trader or working with a partner.