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Your partnership:
Setting up as a sole practitioner

Unlike with a company, there are no particular formalities to go through before you set up business as a sole practitioner unless for example, you need a local authority licence (eg restaurants, childminders).

You do, however, need to notify HM Revenue & Customs when you commence self employment. You should notify within 3 months of the end of the month in which you started your self employment, or you may be charged a £100 penalty. You notify them by completing Form CWF1.

As a self employed person you will pay income tax, Class 2 and Class 4 National Insurance contributions (NIC). Income tax and Class 4 NIC are based on your profits, and do not need to be paid for some time after you have first started up. They are collected under the self assessment system.

By contrast, you need to start paying Class 2 NIC as soon as you become self employed. Class 2 NIC is charged at a weekly flat rate and we recommend that you complete the direct debit mandate, which forms part of the form CWF1, so that this is taken from your bank account automatically each month.

If you have any employees, you will need to register for a PAYE scheme.

You must also register for VAT if your sales are sufficiently high or if you want to register voluntarily.

For more information on tax matters, see the following sections:

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