Setting Up as a Sole Trader in Construction: Step by Step

‍‌​​​​​​‌​‌‌​​‌‌​​‌‌​‌‌​​​‌​‌​​‌‌‍# S9. Setting up as a sole trader - step by step

"Going on your own" is not just making a logo and a WhatsApp status. You're telling HMRC you're a business and you're taking the hit if you get it wrong.

1. THE SHORT VERSION

A sole trader is you as a one‑person business. No company, just you trading under your own name or a business name.

You must tell HMRC once you're earning more than £1,000 a year from self‑employment and register for Self Assessment.

You pay tax on your profits, not your turnover, and you're personally liable for any debts.

2. WHAT "SOLE TRADER" ACTUALLY MEANS

• You and the business are the same legal person. There's no limited company shielding you.
• If things go wrong, people can chase you personally for debts – including your savings, maybe your house if it's serious.
• You keep control: you pick the work, set your rates (in theory), and deal directly with HMRC for tax.

If you want limited protection, that's a company job. This section is about the simple route: sole trader.

3. WHEN YOU HAVE TO REGISTER

You don't need to hit huge numbers before HMRC cares.

• If you earn more than £1,000 in a tax year (6 April–5 April) from self‑employment, you must tell HMRC.
• Deadline: by 5 October after the end of the tax year you started.

Example: You start taking paid work as a sole trader in May 2026. That's tax year 2026/27. You must register by 5 October 2027.

If you know you're going self‑employed, don't wait. Register early and avoid late‑registration stress.

4. STEP‑BY‑STEP: REGISTERING AS A SOLE TRADER

Step 1 - Decide your trading name You can trade under your own name (easiest) or a business name ("J Smith Carpentry", etc.). Don't pretend to be a limited company (no "Ltd" or "Limited" unless you actually are one).

Step 2 - Gather your details You'll need:

• Full name and address
• Date of birth
• National Insurance number
• Phone and email
• Your business name (if you're using one)
• What you do (e.g. carpentry, bricklaying, groundworks)
• The date you started trading (first day you began trying to make money, not the day you made a logo)

Step 3 - Register for Self Assessment as self‑employed

• Go to GOV.UK → "Register as a sole trader" or "Register for Self Assessment".
• Choose the option for self‑employed sole trader and fill in the online form.
• If you've never done Self Assessment, you'll create an HMRC online account during this process.
• HMRC will post you your UTR (Unique Taxpayer Reference) once you're in the system. Keep it safe. You'll use it for CIS, returns, and any call with HMRC.

5. AFTER YOU REGISTER - WHAT ACTUALLY CHANGES

• HMRC now expects a Self Assessment tax return every year until you tell them you've stopped trading.
• You must declare your self‑employed income and expenses and pay any tax and NI due by the deadlines.
• If you also have PAYE work, you put that on the same return.

Deadlines (current pattern):

• Tax year ends: 5 April.
• Register: by 5 October after that.
• Online tax return and payment: normally by 31 January following the end of the tax year.

If you miss deadlines, HMRC fines and interest follow.

6. TAX AND NI AS A SOLE TRADER (CURRENT PICTURE)

You're taxed on your profits (income minus allowable business expenses), not every pound that comes in.

• In 2025/26, income tax still kicks in on profits above the personal allowance (e.g. £12,570), with higher rates above higher thresholds.
• Class 2 NICs have largely been scrapped from April 2024 for most, but Class 4 NICs still apply on profits above a threshold.
• Numbers move every Budget, but the pattern is the same: profits up, tax and NI up. Keep that in mind when someone waves a big day rate at you.

7. RECORDS YOU HAVE TO KEEP (EVEN IF YOU HATE PAPERWORK)

HMRC doesn't care if you're "not a paperwork person".

You must:

• Keep records of all money coming in (invoices, remittance slips, CIS statements, bank statements).
• Keep receipts/records of all business expenses (materials, tools, PPE you genuinely pay for, fuel, mileage logs, phone, insurances, etc.).
• Keep records for at least 5 years after the 31 January deadline for that tax year.

From April 2026, if your business income is over £50,000, Making Tax Digital for Income Tax starts to bite – digital records and quarterly updates via software.

The earlier you get used to keeping things tidy, the less MTD will hurt you later.

8. COMMON SOLE‑TRADER MISTAKES (AND HOW TO DODGE THEM)

Not registering because "it's only a bit on the side" Over £1,000 in a tax year and you should be telling HMRC.

Guessing your numbers at tax time No records = wrong return, missed expenses, possible penalties.

Thinking CIS means you don't need to file CIS deductions are advance tax. You still file a return and often get a refund.

Spending everything and forgetting tax is coming A decent rule of thumb is to ring‑fence a chunk of every payment (for many trades, 20–30%) in a separate account.

Not separating money One account for wages, bills, nights out and business = a mess. A simple separate business account makes life easier.

9. SOLE TRADER VS LIMITED COMPANY (FOR YOU, RIGHT NOW)

For most people starting out on the tools:

• Sole trader is simpler and quicker to set up, with less admin and lower accountancy costs.
• A company can bring some tax benefits and limited liability, but it adds Companies House filings, director duties, and more HMRC complexity.

If you're not sure, starting as a sole trader and moving to a company later (when you're consistently busy and earning well) is common.

10. QUICK CHECKLIST - "HAVE I ACTUALLY SET UP PROPERLY?"

• Have you decided your trading name and made sure you're not pretending to be Ltd?
• Have you registered for Self Assessment as self‑employed and got your UTR?
• Do you know your registration deadline (5 October after the end of the tax year you started)?
• Have you started keeping records of every job, invoice, CIS statement and expense?
• Have you set aside a chunk of each payment for tax and NI, not just spent the lot?

PAYE vs SOLE TRADER vs LIMITED COMPANY - IN ONE GLANCE

WHAT TO DO NEXT

• Register for Self Assessment on GOV.UK as a self-employed sole trader and get your UTR.
• Open a separate business bank account so your records are clean from the start.
• Start keeping receipts and records of every business expense from day one.
• Set aside 20-30% of every payment into a separate account for tax and NI.
• Register for CIS as a subcontractor if you are working in construction.

SOURCES

• Income Tax (Trading and Other Income) Act 2005. https://www.legislation.gov.uk/ukpga/2005/5
• National Insurance Contributions Act 2015. https://www.legislation.gov.uk/ukpga/2015/5
• GOV.UK - Set up as a sole trader. https://www.gov.uk/set-up-sole-trader

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