If you’re running a small business as a sole trader in the UK, you might be wondering whether you need to register with Companies House. It’s a common question, especially for those new to the world of self-employment. The short answer is: no, sole traders do not need to register with Companies House. However, there are several other important steps you must take to legally operate as a sole trader. In this article, we’ll explain why you don’t need to register with Companies House, what you do need to do instead, and how to stay compliant with UK regulations.
What is a Sole Trader?
A sole trader is an individual who owns and runs their own business. As a sole trader, you are personally responsible for the business’s finances, including any debts or losses it incurs. This business structure is simple and straightforward, making it a popular choice for freelancers, contractors, tradespeople, and other small business owners.
Sole traders can operate under their own name or choose a business name, but in either case, the business is not a separate legal entity. In contrast, limited companies (which do register with Companies House) are legally distinct from their owners.
Why Sole Traders Don’t Need to Register with Companies House
Companies House is the UK’s registrar for limited companies and certain other legal structures, such as limited liability partnerships (LLPs). Sole traders, on the other hand, are not classified as companies. This means that you don’t need to register with Companies House to operate as a sole trader. The requirements for sole traders differ significantly from those for limited companies in terms of registration, reporting, and accounting.
While limited companies must file annual accounts and other documents with Companies House, sole traders have simpler reporting obligations, mainly through HM Revenue & Customs (HMRC).
What You Must Do as a Sole Trader
Even though you don’t need to register with Companies House, there are still several important legal steps to take as a sole trader to ensure you’re operating within the law.
1. Register with HMRC
As a sole trader, your primary legal requirement is to register with HMRC for Self Assessment. This allows you to pay income tax on your business profits and make National Insurance contributions.
You can register online through the HMRC website. After registering, you’ll need to submit a Self Assessment tax return each year, which details your income and expenses. You’ll pay tax on any profits over your personal allowance, and you’ll also need to make Class 2 and Class 4 National Insurance contributions if your earnings exceed certain thresholds.
2. Choose a Business Name (Optional)
While you can trade under your own name, many sole traders prefer to create a business name to give their operation a more professional feel. There are some rules you need to follow when choosing a business name:
- You cannot use the same name as an existing limited company.
- The name must not include terms like “limited,” “Ltd,” “PLC,” or “LLP,” as these are reserved for incorporated businesses.
- The name must not be offensive or misleading.
It’s also a good idea to check if the domain name is available for a business website and whether you can secure social media handles with your chosen name.
3. Keep Accurate Records
Sole traders must maintain accurate financial records, including details of all income, expenses, and receipts. This is essential for completing your annual Self Assessment tax return and calculating your profit for the year.
Unlike limited companies, sole traders are not legally required to prepare formal accounts, but good record-keeping is crucial to staying compliant with HMRC and understanding your business’s financial position.
4. Comply with VAT Regulations
If your business turnover exceeds the VAT threshold, which is currently £85,000 per year (as of 2024), you must register for VAT with HMRC. Even if your turnover is below the threshold, you can choose to voluntarily register for VAT, which can be beneficial in some cases.
Once registered, you’ll need to charge VAT on your products or services, submit VAT returns, and pay any VAT owed to HMRC.
5. Insurance
While insurance isn’t a legal requirement for all sole traders, certain types of business insurance can be essential for protecting yourself and your business. Common types of insurance include:
- Public Liability Insurance: Protects you against claims if someone is injured or their property is damaged because of your business activities.
- Professional Indemnity Insurance: Covers you if a client claims that you’ve provided inadequate or incorrect advice or services.
- Employers’ Liability Insurance: If you hire employees, this insurance is legally required to cover compensation claims if they are injured or become ill as a result of their work.
6. Licensing and Permits
Depending on your type of business, you may need specific licenses or permits to operate legally. For example, if you run a food business, you’ll need to register with your local authority and comply with food safety standards. Always check if your industry requires additional certifications or licenses.
Should You Consider Registering a Limited Company?
While registering with Companies House isn’t necessary as a sole trader, some small business owners choose to switch to a limited company structure as their business grows. There are advantages to being a limited company, including:
- Limited Liability: Your personal finances are protected if the company goes into debt or faces legal action, as the company is a separate legal entity.
- Tax Efficiency: Limited companies often benefit from lower corporation tax rates compared to sole traders, although the tax rules can be more complex.
- Professional Image: Some businesses prefer the image and credibility that comes with being a limited company.
However, registering a limited company also brings additional responsibilities, including more rigorous reporting, filing annual accounts with Companies House, and paying corporation tax.
Conclusion
If you’re operating as a sole trader, you don’t need to register with Companies House. Instead, your main obligation is to register with HMRC and manage your tax responsibilities through the Self Assessment system. While this offers simplicity and flexibility, it’s important to stay on top of your finances, taxes, and legal requirements to ensure your business remains compliant.
As your business grows, you may wish to explore whether transitioning to a limited company would be more advantageous, but until then, registering with Companies House and having a company number is not a requirement for sole traders. By understanding the rules and taking the necessary steps, you can focus on building a successful and compliant business.