How to Start a Sole Proprietorship in the US from the UK

Thinking about breaking into the U.S. market from the UK? It’s a huge opportunity, but the thought of setting up a formal company can feel daunting. The good news is, you don't have to start with a complex LLC or corporation.

For many UK founders, the most straightforward path is starting as a U.S. sole proprietorship. Think of it as the American equivalent of being a 'sole trader' back home. You and your business are legally the same entity, which dramatically simplifies things. There’s no need to file formation documents with a state, which saves you a ton of time and upfront costs right away.

Getting Started: The Sole Proprietorship Route

Your focus isn't on paperwork but on getting the practical pieces in place to operate legally from across the pond. It's about building a legitimate financial and legal footprint in the States without having to physically move there.

Laying the Groundwork from the UK

From our experience helping founders do this, there are three non-negotiable items you'll need to sort out first:

• A U.S. Business Address: You can't use your UK address for this. U.S. banks and the IRS require a legitimate U.S. address for correspondence and applications. A quality virtual address service is the go-to solution here.

• A U.S. Tax ID (EIN): Even without employees, you'll need an Employer Identification Number (EIN) from the IRS. This is the key that unlocks your ability to open a U.S. bank account and file the necessary taxes.

• A U.S. Business Bank Account: This is absolutely crucial. It allows you to accept payments in USD seamlessly, manage your American expenses, and most importantly, keep your business finances completely separate from your personal funds—a must for clean accounting.

Getting these elements lined up from the UK can have its quirks, but they are the essential foundation for your entire U.S. operation. If you need a complete walkthrough, our team at Setup U.S. has put together a detailed guide specifically for UK founders like you.

To give you a clearer picture, let's break down the key features of a U.S. sole proprietorship from a UK founder's perspective.

Sole Proprietorship Snapshot for UK Founders

Attribute	U.S. Sole Proprietorship Key Feature	Implication for UK Founders
Legal Structure	No legal separation between owner and business.	Simple setup, but personal assets are not protected from business debts.
Formation	No state registration required. You simply start doing business.	The fastest and cheapest way to start. No filing fees or paperwork.
Taxation	Business income is reported on your personal tax return (Form 1040-NR).	You'll need to file a U.S. non-resident tax return. No separate business tax return.
Banking	Requires an EIN and U.S. address to open a business bank account.	An EIN is a mandatory first step for managing U.S. finances professionally.
Best For	Testing a market, freelancers, and consultants with low liability risk.	An excellent low-commitment strategy to validate your U.S. market presence.

This table shows why the sole proprietorship is such a powerful starting point. It's not just a business structure; it's a strategic tool.

This approach lets you test the waters in the U.S., build an initial customer base, and start generating revenue with the least amount of administrative hassle. Once you're established, you can always transition to an LLC for liability protection.

You'd be in good company. Of the 36.2 million small businesses in the United States, a staggering 24.6 million are sole proprietorships run by a single owner. It's a proven and incredibly common path for entrepreneurs to take.

Getting Your Essential US Tax IDs from Abroad

Alright, you've made the call to launch in the U.S. as a sole proprietor. Now for the practical part: getting the right credentials from the American tax authority, the IRS. This isn't about state-level business registration just yet. First, we need to get you properly set up at the federal level so you can operate legally and, more importantly, get paid.

Since you're a UK citizen without a U.S. Social Security Number (SSN), your first piece of paperwork is for an Individual Taxpayer Identification Number (ITIN). This is the non-resident equivalent of an SSN and serves as your personal link to the U.S. tax system. The IRS requires it to identify you as an individual taxpayer, making it a non-negotiable first step.

The All-Important Employer Identification Number

Once your ITIN application is underway, your next target is the Employer Identification Number (EIN). Here’s where a lot of people get tripped up. The name is misleading—you need an EIN even if you have zero plans to hire anyone.

Think of it this way: The EIN is for your business, while the ITIN is for you. U.S. banks, payment processors like Stripe, and the IRS itself will ask for your EIN to open accounts and track your business's financial activity. It's the official tax ID for your sole proprietorship.

Getting one means filling out Form SS-4. On the surface, the form looks simple enough, but it’s loaded with traps for foreign founders. Certain fields, especially the one asking for an SSN or ITIN, need to be handled in a very specific way to prevent your application from being rejected outright. Frankly, it's where most DIY attempts go wrong.

This is the basic path you'll follow. The EIN is the crucial link between you, the founder, and your ability to actually do business in the US.

As you can see, getting that EIN is what unlocks the next major step: opening a U.S. bank account.

Navigating the IRS Application Maze

Here's the part that really tests your patience. After submitting Form SS-4, you'll often have to call the IRS to finalize the application and get your number. For a UK founder, this call is a real headache. You can expect long hold times and, often, an agent who isn't familiar with the specific needs of a non-resident sole proprietor.

This is a massive bottleneck. Having a third party who knows the system inside and out can be a game-changer. An experienced service can manage the entire process for you—from getting the form right the first time to handling the calls with the IRS—saving you a world of frustration.

Establishing Your Required US Presence

Even though you’ll be running things from the UK, you absolutely need a physical U.S. address. You simply can't use your UK address for official business. It's a hard rule for receiving documents from the IRS, banks, and other agencies.

Two services are essential here:

• A U.S. Mailing Address: This needs to be a real street address, not just a P.O. Box. It’s where your official business mail will land. Good providers will scan your mail and upload it to a secure portal, giving you instant access from anywhere.

• A Registered Agent Service: While technically a bigger deal for LLCs and corporations, I always recommend a registered agent as a best practice for sole proprietors, too. This agent is your official point of contact in a specific state for receiving legal summons or government notices, ensuring you never miss a critical piece of correspondence.

Just picture the IRS sending a time-sensitive letter about your EIN. If it's sent via slow international mail to your UK address, you could easily miss the deadline to respond, potentially getting your application thrown out. A virtual mailbox and registered agent service eliminate that risk, giving you the legitimate U.S. presence that institutions demand.

We cover more compliance issues across the Setup Stateside blog, but getting these foundational pieces in place is your first big win.

Building Your US Financial Infrastructure

Once you've secured your US tax IDs, it’s time to lay the financial groundwork for your American business. This is where things get real. You’ll need to set up a US business bank account—this isn't just a nice-to-have, it's the bedrock of your entire US operation.

Thinking you can just run everything through your UK Barclays or HSBC account? Think again. That path is riddled with painful currency conversion fees, frustrating payment delays, and a paper trail that will give your accountant nightmares. More importantly, American clients and payment gateways like Stripe are set up to work with the US banking system. Paying into a proper US account makes you look credible and professional.

Opening Your US Bank Account as a Non-Resident

Here’s a hurdle that trips up many UK founders: most traditional American banks, like Chase or Bank of America, demand that you show up in person to open a business account. For someone running their venture from Bristol or Glasgow, that’s a non-starter.

Thankfully, a new generation of financial platforms has completely changed the game for international entrepreneurs. They’ve built their services specifically for people in your exact situation.

• Mercury: A fantastic option, especially popular with tech and e-commerce founders. It has a slick, easy-to-use interface, no monthly fees, and plugs in nicely with all the other tools you’ll be using.

• Relay: Another top contender that really shines when it comes to managing your money. It lets you create multiple virtual accounts, which is brilliant for earmarking funds for taxes, inventory, or marketing spend.

These digital-first banks get it. Their application process is designed for non-residents, so as long as you have your EIN and US business address ready, you can get everything sorted online from your desk in the UK.

The Golden Rule: Separate Your Finances

Even as a sole proprietor where the business is legally you, you must draw a hard line between your business and personal finances. Never, ever use your business account for personal spending or deposit client payments into your personal current account. This is easily one of the most common—and costly—mistakes I see new business owners make.

Commingling funds creates a massive headache at tax time. It becomes nearly impossible to accurately track your business income and expenses, leading to inaccurate tax filings with both the IRS and HMRC.

A dedicated business account solves this problem from day one. All your US income flows into one place, and all your business expenses are paid from that same account. This clean, clear financial record is the foundation for good decision-making and stress-free tax compliance.

Setting Up Your Accounting System

If your bank account is your financial hub, your accounting system is the command center. This is where you’ll track every dollar, make sense of your cash flow, and get a true picture of your business's health. Don't think of it as just a tool for your year-end taxes; it's your real-time business dashboard.

Cloud-based accounting software is the only way to go for this kind of cross-border setup. I almost always recommend platforms like QuickBooks Online or Xero because they integrate directly with your new US bank account. Transactions are pulled in automatically, making bookkeeping far less of a chore.

Getting this right is crucial for a few key reasons:

1. Accurate Tax Reporting: It gives you the clean numbers needed for your Form 1040-NR (your US non-resident tax return) and makes claiming the Foreign Tax Credit on your UK self-assessment straightforward.

2. Financial Clarity: You can pull up a profit and loss statement, see who owes you money, and check your cash position in minutes. This is essential for making smart, data-driven decisions.

3. Sales Tax Management: As you grow, these systems help you monitor sales by state, which is vital for knowing when and where you might need to start collecting sales tax.

The drive to build something of your own is powerful, and it's what makes small businesses and sole proprietorships the engine of the economy. Between 1995 and 2023, these small ventures created an incredible 20.2 million net new jobs in the US. You can find more fascinating stats about small business impact on Cake.com.

Navigating US Tax and Compliance from the UK

https://www.youtube.com/watch?v=DvegHy7iuc0

Breaking into the U.S. market from the UK is a huge milestone, but this is the part where you absolutely have to get the details right. U.S. tax and compliance can be a real minefield if you’re not prepared. For most UK founders selling online, the most immediate puzzle is sales tax, and it all revolves around one critical concept: nexus.

Nexus is simply the legal term for having a strong enough connection to a U.S. state that you're required to collect and remit taxes there. When you're running a sole proprietorship, there are two kinds of nexus you need to keep on your radar.

• Physical Nexus: This one is pretty straightforward. If you have a physical footprint in a state—an office, a warehouse, an employee, or even just inventory stored in an Amazon FBA center—you’ve created a physical nexus. This usually means you have to collect sales tax from your very first sale in that state.

• Economic Nexus: This is the one that catches out most remote sellers. Economic nexus is triggered when your sales into a particular state cross a certain threshold within a year. While it varies from state to state, a common benchmark is $100,000 in sales or 200 separate transactions.

Don't make the mistake of thinking this is only for big corporations. Understanding nexus is fundamental from day one of your sole proprietorship.

So, How Does Sales Tax Actually Work for You?

Let's walk through a real-world scenario. Imagine you’re running a Shopify store from your home in Manchester, selling beautiful handmade leather goods to customers across the States. You’ve already set up your U.S. sole proprietorship, complete with an EIN and a U.S. bank account.

In your first year of business, things are going well. You sell $110,000 worth of products to customers in California and another $80,000 to customers in Florida.

Because California's economic nexus threshold is $100,000, you’ve just crossed it. This means you now have a legal obligation to register with the California Department of Tax and Fee Administration. From that point on, you must collect California sales tax on all sales to customers in that state and file regular sales tax returns.

Meanwhile, your Florida sales are still below its $100,000 threshold, so you don't have to worry about collecting sales tax there… yet. This kind of state-by-state tracking is a non-negotiable compliance task for any UK founder with U.S. customers.

What About Federal Income Tax?

On top of sales tax, there’s U.S. federal income tax. As a sole proprietor, your business isn't a separate taxable entity. Instead, all the profits "pass through" directly to you, the owner.

Because you are a non-resident of the U.S., you'll report all this U.S.-sourced income on a specific form: Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Think of it as your personal U.S. tax return, where you declare the profits from your American business activities. It’s a much simpler process than filing a corporate tax return, which is one of the big draws of starting as a sole proprietor.

The most critical thing to remember is that you will have tax filing obligations in both the U.S. and the UK. Simply ignoring one jurisdiction can lead to serious penalties and headaches down the road.

Now, you might be worried about getting taxed twice on the same income. The good news is, there’s a system in place to prevent that.

The US-UK Tax Treaty: Your Shield Against Double Taxation

A formal tax treaty exists between the U.S. and the UK, designed specifically to prevent people from being taxed twice on the same earnings. This agreement doesn't mean you can skip filing in one country, but it ensures you don't pay the full tax rate to both the IRS and HMRC on the same pound of profit.

Here's a simplified look at how it works:

1. First, you file your Form 1040-NR in the U.S. and pay income tax on the profits your sole proprietorship generated.

2. Next, you file your UK Self Assessment tax return, where you must report your worldwide income (which includes your U.S. business profits).

3. Finally, on your UK tax return, you claim a Foreign Tax Credit (FTC) for the income taxes you've already paid to the IRS.

This credit directly reduces your UK tax bill, effectively giving you credit for what you paid in the U.S.

However, navigating the treaty language and properly claiming the FTC is incredibly complex work. It requires an expert-level understanding of both tax codes. This is exactly why getting professional advice from a firm that specializes in U.S. and UK tax, like Set Up Stateside, isn't just a nice-to-have—it's essential for staying compliant and giving you true peace of mind.

Thinking Ahead: When to Grow Beyond a Sole Proprietorship

For a UK founder testing the American market, the sole proprietorship is brilliant. It’s quick, inexpensive, and lets you get your foot in the door without a mountain of paperwork. But its biggest advantage—simplicity—hides its most dangerous drawback: unlimited personal liability.

This isn't just some legal phrase to gloss over. It means there’s no legal wall between you and the business. If your venture racks up debt or gets sued, creditors can come after your personal assets to settle the score.

And that risk isn't just limited to any assets you might have in the US. Because you and the business are legally the same entity, that liability can jump across the Atlantic and put your personal wealth in the UK on the line. We’re talking about your home, your savings, everything. It's the single most important trade-off you make.

What Personal Risk Actually Looks Like

It's easy to think "that won't happen to me," so let’s walk through a real-world scenario. Imagine your new US e-commerce business sells a product with a hidden manufacturing flaw. A customer gets hurt and sues your company for damages.

Because you're a sole proprietor, they're not just suing "My Awesome US Shop." They're suing you. If a court awards them a hefty sum, your personal bank accounts and even your property could be used to pay it. This is the stark reality of the sole proprietorship model.

Think of the sole proprietorship as your entry point, not your forever home. It's a fantastic vehicle to get started, but you absolutely need a plan for when to graduate to a structure that protects you.

Having this forward-thinking mindset is key. The tough truth is that building a business is hard; government data shows that only 49.2% of businesses are still around after five years. Starting lean with a sole proprietorship is a smart way to get going, but transitioning to a more formal company structure is how you build to last. You can dig into more of these trends and statistics over at Business Initiative.

Knowing When It's Time to Upgrade

So, what’s the signal to make a change? It’s less about a date on the calendar and more about spotting key milestones in your business’s journey. When these things start happening, it’s your cue to get serious about forming an LLC or a corporation.

From my experience helping UK founders, here are the most common triggers:

• You hire your first US employee. The moment you bring on staff in the States, your risk and compliance duties explode. An LLC or corporation creates a vital shield against employment claims and makes handling payroll and taxes much cleaner.

• You're ready for investment. No serious investor will wire money to an individual. They invest in scalable, formal entities like a C Corporation that can issue shares and provide a clear ownership structure.

• Your revenue starts climbing. There's no magic number, but once you start approaching $80,000–$100,000 in annual revenue, it's time to act. Your business now has real value, and you have more to lose.

• You land a major contract. Big American companies often require their vendors and consultants to be incorporated. It’s a matter of professionalism and liability protection for them, and it makes you look like a more serious, stable partner.

The Path From Sole Proprietor to LLC or Corporation

Planning for this transition from the start doesn't mean you're thinking small; it means you're being strategic. When you're ready, the actual process of converting is surprisingly straightforward if you have the right guidance.

Upgrading to an LLC: This is the most popular next step. Forming a Limited Liability Company (LLC) establishes that all-important legal barrier between your business finances and your personal life. The process involves filing "Articles of Organization" in a specific state and creating an "Operating Agreement." In most cases, you can even keep using the same EIN for your new single-member LLC, which simplifies things.

Upgrading to a C Corporation: This move is typically for founders with their eyes on venture capital. A C Corporation is the gold standard for high-growth startups because it lets you issue different classes of stock to investors and offer stock options to employees. It does come with more formal rules—like holding board meetings and keeping minutes—but it’s the required structure for playing in the big leagues.

Choosing a sole proprietorship to launch your US venture is a smart, tactical decision. But building a business that endures demands a bigger vision—one that includes protecting yourself as you succeed. Working with a partner like Set Up Stateside that understands the full journey, from your first EIN to your eventual incorporation, ensures you make the right moves at the right time.

Common Questions from UK Founders

I get it—taking your business to the U.S. brings up a ton of questions. We’ve walked through the main strategy, but now let’s dig into the specific things UK founders ask us all the time when they're thinking about starting a sole proprietorship in America.

Can I Start a Sole Proprietorship in the US While Living in the UK?

The short answer is yes, absolutely. You don't need to be a U.S. citizen or even live there to set one up. The whole point of a sole proprietorship is that it's tied to you, the individual, no matter where you are in the world.

The real task is setting up your U.S. operational footprint from abroad. This means getting your Individual Taxpayer Identification Number (ITIN) and Employer Identification Number (EIN) from the IRS. You'll also need a proper U.S. business address—usually a virtual address service—which is crucial for receiving official mail and opening a bank account.

Once you have those pieces in place, you can open a U.S. bank account and start operating legally. Because a sole proprietorship is just an extension of you, there's no state paperwork to file. The main hurdle is really just navigating the admin from across the pond, which is where having someone who’s done it a hundred times before can make all the difference.

Do I Have to Pay Taxes in Both the US and the UK?

You’ll have to file taxes in both countries, but the great news is you won't get taxed twice on the same income. This is all thanks to the U.S.-UK tax treaty.

Here’s a simplified look at how it works for a UK-based sole proprietor:

• First, you’ll file a U.S. non-resident tax return (Form 1040-NR). This is where you report the income your business earned in the U.S. and pay the corresponding U.S. income tax to the IRS.

• Then, back in the UK, you’ll file your usual Self Assessment tax return. You have to declare your worldwide income, which now includes the profits from your U.S. operation.

• To prevent double taxation, you claim a Foreign Tax Credit (FTC) on your UK return. This credit directly offsets your UK tax bill by the amount of tax you’ve already paid in the U.S.

It sounds straightforward, but this process can get complicated quickly. To make sure you’re staying compliant and not overpaying, it's a good idea to talk to a professional who truly understands both U.S. and UK tax systems. If you want to get clear on your specific situation, our cross-border tax team can help. Feel free to get in touch with us at Set Up Stateside.

Is a Sole Proprietorship Better Than an LLC for a UK Founder?

This is the classic "it depends" question. The right choice comes down to your business, your goals, and your appetite for risk. Neither one is automatically better; they just solve different problems.

A sole proprietorship is the undisputed champion of speed and simplicity. It's the perfect vehicle for testing a business idea, starting a freelance career, or launching a service with very little liability risk. You can get up and running in the U.S. market fast, with minimal cost and paperwork.

An LLC, on the other hand, offers a powerful layer of personal protection. When you form a Limited Liability Company, you're creating a separate legal entity. This is a big deal because it shields your personal assets—your house, your savings—from any business debts or lawsuits.

We see many UK founders take a hybrid approach that works brilliantly. They start out as a sole proprietorship to validate their idea without a lot of upfront investment. Once the business has proven itself and revenue is flowing, they convert to an LLC to lock in that long-term asset protection.

What Happens If I Don't Register for Sales Tax?

Ignoring sales tax is one of the most serious and costly mistakes you can make. If your sales into a particular U.S. state cross its "economic nexus" threshold—often around $100,000 in sales or 200 separate transactions—you are legally required to register, collect, and remit sales tax there.

If you don't, states can come after you for all the uncollected back taxes, and they'll tack on hefty penalties and interest. This can become a massive financial liability, especially for a founder operating remotely who isn't keeping a close eye on the rules for all 50 states. You absolutely must track your sales into each state and register as soon as you hit that nexus trigger.