Q: If the personal allowance is £12,570, why do I have to register as a sole trader if I’m making less than that each year?
A: This is an understandable question given that you do not need to pay tax on any money made below £12,570. HMRC’s rules state that if your gross annual income is over £1,000 then you must register as self-employed and submit a self-assessment tax return. This applies to individuals, not partnerships.
HMRC requires this so that it can check that sole traders are paying the correct amount of tax on their earnings, if applicable. They also need to maintain records on those who are trading for the purpose of providing the Government useful statistics on the state of the economy – how many sole traders are operating and how much they contribute to the economy, for example.