A theatre asks a local dressmaker for a quote to alter twelve costumes. Before she sends it, she has a decision to make. Will the theatre hire her personally, trading under her own name, or a company she owns? Both can do the job. The answer determines whose name goes on the quote, who owes the fabric supplier and which records the dressmaker must keep.
Choose who will sign the first contract
As a sole trader, you own the business, keep its profits after tax and take personal responsibility for its debts. You can generally begin trading before registering with HM Revenue and Customs (HMRC), subject to any permissions your activity requires. With a private limited company, the company owns the business and enters into contracts. Register it with Companies House before trading in its name. One person can be both director and shareholder.
For the dressmaker, a one-page quote can settle what the theatre expects. She lists the costumes, agreed alterations, fitting dates, price and who pays for extra fabric. Keeping the theatre’s acceptance helps resolve a later dispute. A business plan or cash forecast can help her decide whether to accept payment after opening night. Neither document forms part of ordinary sole trader registration or company incorporation.
Register as a sole trader
Gather your National Insurance number, contact details, the date you started working for yourself and a description of the trade. Have your existing Unique Taxpayer Reference (UTR) handy if you already file a return. Follow HMRC’s sole trader registration process even if you use Self Assessment for another reason. Save the confirmation and keep your tax reference somewhere secure.
Normally, registration is compulsory when gross trading income across your trades exceeds £1,000 in a tax year, running from 6 April to 5 April. Count receipts before deducting expenses. At £1,000 or less, keep income records and check whether an exception applies. For example, a subcontractor joining the Construction Industry Scheme must register. HMRC explains who can claim the trading allowance and when claiming actual expenses makes sense.
Suppose the dressmaker starts in November 2026. By April the theatre has paid her £1,200 and she has spent £350 on materials. Her gross receipts cross the registration threshold even though only £850 remains. Assuming this is her first return and all those payments fall before 6 April 2027, she must tell HMRC by 5 October 2027. The normal deadline for filing online and paying any balance is 31 January 2028. Paper returns are normally due by 31 October 2027.
Some established sole traders already have digital reporting duties. From April 2026, someone whose combined qualifying income from self-employment and property exceeded £50,000 on their 2024 to 2025 return generally needs compatible software, digital records and quarterly updates. Check HMRC’s Making Tax Digital guidance for your start date and any exemption. The annual return still applies.
Prepare a limited company application
For a private company limited by shares, choose an available name, the industry classification code that describes the work, a registered email address and an appropriate registered office in the jurisdiction of incorporation. The office address becomes public. Someone there must receive company post, and senders must be able to confirm delivery. Collect the directors’ personal details, home and service addresses, and identify the shareholders and people with significant control. Someone holding more than 25% of shares or voting rights normally qualifies.
Each new director must verify their identity and supply their Companies House personal code at incorporation. Someone who also has significant control supplies the code separately for that role. New individual controllers can supply it when added to the register or within the following 14 days. Check the Companies House verification timetable for the relevant appointment.
The memorandum of association records the founders’ agreement to form the company. Online registration generates it. The articles of association govern how the company runs, and standard model articles suit many uncomplicated businesses. The statement of capital identifies shareholders, their holdings, share values and attached rights. Compare your choices with the formation document requirements.
Save the certificate of incorporation with the company number and formation date. Online registration costs £100 and usually sets up Corporation Tax too. Check HMRC knows that the company has become active within three months of the start of its tax accounting period. Keep the company UTR, first trading date and accounts date together.
Build records around each payment
For a sole trader, keep evidence of sales, expenses and other personal income relevant to the return. Save supplier receipts, invoices, bank statements and cash sales records. Check your bank permits business transactions on the chosen account. A company must keep its banking separate from its owner’s. Its accounts also need details of assets, outstanding debts, purchases, sales and stock held at the year end.
Give each invoice a unique number. Include the supplier’s name, address and contact details, the customer’s name and address, description of the work, supply date, invoice date, charges, applicable VAT and total. Sole traders include their own name and any trading name, plus an address for legal documents when using a trading name. Companies use their full registered name. Check the invoice requirements before sending the first bill.
If the theatre pays £1,200 by card and the processor deposits £1,176, record the £1,200 sale and £24 fee separately. Match the invoice to the processor statement and bank deposit. Keep sole trader records for at least five years after the relevant January filing deadline on a timely return. Keep company accounting records generally for six years after the financial year concerned, and longer in circumstances such as an ongoing HMRC check.
Set reminders for filings and permissions
Company directors must also retain shareholder records, resolutions and details of share transactions. File a confirmation statement at least annually, within 14 days after the review period ends. First company accounts are normally due 21 months after incorporation. The usual Corporation Tax payment deadline is nine months and one day after the accounting period ends, and the return is due after twelve months. Enter the company’s actual filing deadlines individually.
For either structure, monitor UK taxable turnover each month. The normal VAT registration threshold is £90,000 over a rolling twelve months. If you exceed it, register within 30 days after that month ends. If you expect taxable turnover to exceed £90,000 in the next 30 days alone, register by the end of that period.
Search the licence finder by activity and UK nation, then confirm local requirements with the council. A home baker in England, for instance, must register their food business with the local authority at least 28 days before trading. If you hire staff, check employer registration before the first payday and keep payroll records. A market organiser may separately request evidence of insurance before accepting a stall booking.
For the dressmaker taking fittings at home, the first call may be to her landlord or mortgage provider. She can ask the council about customer visits and her insurer about cover for costumes left overnight. Keep any written permission, policy schedule and conditions beside the theatre’s signed quote. If a jacket goes missing before opening night, those are the documents she will want to find.