How to set up business banking as a sole trader

If you are in business on your own but have not registered as a company, then the chances are that you are technically a ‘sole trader‘. This is a type of self-employed status that means you do not have a company, and do not have to pay corporation tax on your earnings.

Instead, you pay income tax on everything you earn over the tax-free personal allowance, and if you do not make a large amount of money as a sole trader, this might mean you pay less tax overall.

However, the more you earn, the more it starts to make financial sense to register as a company, as this gives you more options to manage your tax bill, pay yourself bonuses and dividends, and potentially reduce the amount of tax you pay overall.

The exact decision depends on your own unique circumstances, so you should consider speaking to an accountant or a financial advisor before you register as a company with HMRC.

Setting up as a sole trader

Setting up as a sole trader is not difficult – in fact you can start trading even before you let HMRC know about your self-employed status, although it’s sensible to register as self-employed as soon as possible so that you’re not at any risk of being investigated for working under an incorrect status.

You might want to get an accountant to help you register as self-employed with HMRC. An accountant can also register as your ‘agent’, which means they have permission to deal directly with HMRC on your behalf.

Having a registered agent means that your accountant can file your tax return for you and deal with the reply from HMRC. You will still receive important letters direct to your own address though, for example a reminder of when your tax return is due, and of how much tax you need to pay before the next deadline.

Am I a sole trader?

You might be surprised by what counts as a sole trader. The broad definition is if you carry out activities for a profit as an individual – you might do work for other people as a freelancer or contractor, but ultimately you are ‘your own boss’.

Some of the less obvious activities that might still make you a sole trader include:

  • Selling digital services online, such as web design or drawing digital artworks.
  • Selling things you have made yourself, like greetings cards and jewellery.
  • Selling items on online auction sites for profit (not just as a hobby).
  • ‘Dropshipping’, where you sell items direct from the manufacturer without handling them yourself.

If you choose to do something entirely for free, or it’s just a hobby – for example you occasionally sell items on online auction sites, but don’t make a net gain on their value – then you’re probably not a sole trader, although you are if you also carry out other, profit-making activities as an individual too.

How should I manage my money?

You don’t need to register as a company in order to get a business account. The Arro Business Account is open to sole traders too, if you want a professional-looking account specifically for money from your business activities.

When you open an Arro Business Account, you get a sort code and unique account number, which means your customers can pay you by online transfer instead of having to handle cash.

You also receive a Business MasterCard® debit card, which allows you to make payments directly from your Arro Business Account balance – it also looks really professional to have a Business MasterCard® in your own name, which helps you to put across the right impression as a sole trader or freelancer.

Register for an Arro Business Account

To register for an Arro Business Account as a sole trader, just fill in the signup form. Sole traders get access to the same business account facilities as partnerships and companies, so your status will not mean you miss out on any of the ways we allow business customers to manage their money.

You can have a sole trader Arro Business Account and an Arro Personal Account in your name too – and in fact it makes good sense to do so, as you’ll get a unique account number for each and a separate MasterCard® debit card for each account.

This lets you manage your personal finances separately from your business dealings, and you can always transfer money between accounts using your online dashboard.