A guide to setting up as a sole trader

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Authored by Hiscox Experts.
Starting up
5 min read

A sole trader, also called a sole proprietor, is one of the simplest forms of business ownership in the UK.1 It's a popular structure among freelancers, tradespeople, and small business owners who prefer direct control and a straightforward setup.2 

This guide explains what a sole trader is, how to become self-employed, key tax responsibilities, and the practicalities of running a business on your own.

Considerations for running a business from home

The recent rise in remote working has made running a company from home more attractive to many new entrepreneurs.1 Whether launching a consultancy, selling products online, or providing services, many small business owners find home working a more convenient, cost-effective alternative to renting office space.

Knowing the practical and legal considerations when running a home business can help you decide whether it’s the right choice for you.

The reality of running a business from home

Those running businesses from home often find greater flexibility and fewer overheads, but home working can come with challenges.

Your daily routine can confuse personal and professional responsibilities, requiring clear boundaries and self-discipline. You might find yourself taking client calls in your living room or storing stock in spare bedrooms.

Striking a healthy work-life balance can be key to your personal well-being and your business’s sustainability.  

From health and safety to data protection, there are various legal and regulatory considerations to keep in mind before you begin working from your residential address: 

 

  • Planning permission – regular customer visits, external signage, and altered building use can all change the property’s character and may require a change of use permission from local planning authorities.  

  • Property deeds and lease agreements – leasehold properties can contain clauses prohibiting commercial use, while mortgage agreements may include restrictions around lender consent for business activities.  

  • Business rates – certain properties may be liable for business rates; for example, if you employ others to work at your property, sell goods or services to customers visiting your property, or have converted part of your home for business. 

  • Insurance requirements – standard home insurance doesn’t typically cover business equipment, public liability, and commercial activities; if left undisclosed, you might risk voiding your cover when running your business from home.  

  • Data protection compliance – General Data Protection Regulation (GDPR) applies to all businesses processing personal data. 

  • Professional licensing – financial services, healthcare, food preparation, and other regulated business activities may be legally required to have certain licences and meet specific premises-related conditions or restrictions.  

Tax and business registration requirements

You must typically register with HMRC within three months of starting your business, even when working from home.3 This applies to sole traders or those setting up limited companies. You will also need to complete annual Self Assessment tax returns and may need to register for Making Tax Digital (MTD) and VAT if your turnover exceeds £90,000.

When running a business from home, you may be able to claim allowable business expenses for things like heating, lighting, and Wi-Fi. You can use HMRC’s simplified expenses or calculate actual costs based on the proportion of your home used for business.  

Tax rules can be complex and change regularly. If you need help, consult a qualified tax professional for specific guidance on your circumstances.

Creating a suitable workplace

An organised, comfortable home office can help boost productivity and professional credibility. It doesn’t need to be elaborate, but creating a functional, separate space where possible can help you overcome the challenges of working from home.  

Many business owners who work from home find a dedicated room or space with good natural light, a reliable internet connection, and adequate storage essential. Investing in proper office furnishings, like an ergonomic desk and chair, and taking regular breaks can help prevent health issues.4  

For example, you might convert a spare bedroom into an office, positioning a desk near the window, with filing cabinets and bookshelves for materials. You might add a small meeting area with two chairs, if you plan to host clients, and use neutral décor to create a professional space.

Managing time and avoiding burnout

Working from home can give you more time with loved ones, money saved from commuting, and the freedom to work whenever and however you want, but it’s not always so straightforward.  

Home working is about more than finding physical space – it can also present the challenges of self-motivation and work-life balance. Without the boundaries of a separate workplace, many small business owners struggle, either procrastinating or overworking. Distractions at home can also impact productivity, while the temptation to work longer hours because the office is always accessible can lead to burnout.

Without colleagues, outside of an office environment, staying motivated can become challenging when you’re not held accountable.5 Regardless of your productivity, switching off from work when living and working in the same space can be difficult, blurring personal and professional boundaries.

On top of that, many home workers find themselves socially isolated due to fewer face-to-face meetings, which can lead to feelings of disconnection and impact mental health.

If you’re feeling burned out or stressed, mental health professionals may offer support. NHS.UK provides more information on accessing mental health services. You could also speak to your GP.  

Financial considerations

While overheads for home offices can be lower than traditional spaces, you may still need to consider a few financial aspects of running a business from home:6  

  • Utility bills from daytime heating and lighting 

  • Increased internet and phone usage 

  • Initial setup and ongoing costs, such as equipment and furnishings 

  • Insurance costs, which can include extra home insurance coverage, professional indemnity insurance, and public liability insurance, depending on your needs and circumstances. 

 

However, you may be eligible to claim some of the above as allowable expenses when completing your Self Assessment.

Disclaimer: 
At Hiscox, we want to help your small business thrive. Our blog has many articles you may find useful as your business grows. But these articles aren’t professional advice. So, to find out more about a subject we cover here, please seek professional assistance. 

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Hiscox Experts

The Hiscox Experts are leaders valued for their experience within the insurance industry. Their specialisms include areas such as professional indemnity and public liability, across industries including media, technology, and broader professional services. All content authored by the Hiscox Experts is in line with our editorial guidelines.