Is Sole Trader the Same as Self-Employed?
Yes – being self-employed is just another name for being a sole trader. As a sole trader, you work alone and employ yourself. You and your business are legally considered one entity. You get to keep all your business’s profits after tax and National Insurance deductions.
There are other means of working for yourself aside from self-employment. You may choose to register as a limited company or a partnership instead, depending on your business setup.
Registering a limited company is the most popular alternative to registering as self-employed. However, owning a registered limited company comes with even greater responsibility. Certain information – such as your business name, address, and some financial details – will be publicly available at Companies House.
You can read more about the differences between a limited company and a sole trader in this article. If you’re unsure whether your business model is best suited to a limited company or self-employed trading status, speak to a professional.
Can you be Self-Employed Without Registering?
You can be self-employed without registering as self-employed, but you must legally register with HMRC if you earn more than £1,000 per year. So, yes, you could technically work as a self-employed individual for life, but it would be illegal, and there would be ramifications if you were discovered to be dodging taxes.
Do I Need to Register as Self-Employed If My Earnings are Low?
Even if you’re earning below the current tax threshold in the UK (£12,570), you still need to submit these earnings online annually – which means being registered as self-employed with HMRC.
You need to be able to show HMRC that you’re not earning enough to pay your taxes, and that means sharing your financial information as proof. So, even if your earnings are relatively low, you will still need to register as a sole trader.
The only exception is if you’re earning less than £1,000 per year. You’re not required to register as self-employed with HMRC in this case.
Do I Need to Tell HMRC if I Am Self-Employed?
Registering as self-employed with HMRC will tell HMRC that you’re in self-employment. So, yes, you need to let HMRC know that you’re self-employed.
Remember, as a sole trader, you’re responsible for your taxes. If HMRC doesn’t know that you’re self-employed, you won’t be able to pay taxes. If you get caught, you’ll end up with a hefty penalty – and you’ll be expected to pay off any undeclared taxes that you’re found to owe.