Setting up as a sole trader can often be the easiest and most cost-effective route for individuals to go into business. However, you will need more than a spare room and an internet connection to make your ideas successful.
Sole trader legal structure
What is a sole trader?
A sole trader is a business owned by one person, where they and their business are legally the same entity. According to the Department for Business, Enterprise and Regulatory Reform, there are as many as three million sole traders in the UK, which represents 64 per cent of all private sector enterprises – making it the most popular form of business in the UK.
Tips on setting up as a sole trader
Apart from being the simplest way of setting up and testing your market, another big benefit is getting to keep all your profits after tax. But the risks can be high, as you are personally responsible for any liabilities incurred by the business.
When deciding what to call your business, you need to make sure it has not already been chosen by someone operating in the same sector. Otherwise, you might be sued for passing off their brand as your own. Checking on the web and in the phone book first is a good way to avoid future legal altercations.
Also, if you are planning to turn your business into a limited company, check the name has not already been registered at Companies House – as you may lose your branding by having to change what you are called further down the line.
Declare your status as a sole trader
Once you begin trading the first thing you will need to do is register as self-employed with HMRC. If you fail to do so within the first three months you will be fined £100.
Sole trader records and accounts
Because you are self-employed, you will have to complete a yearly self-assessment tax return. To help you do this you will need to keep a careful record of all your invoices and receipts. It is also a good idea to set up a business bank account in order to keep all your incoming and out goings separate from your personal account.
The amount of tax you will pay will depend on the amount you earn, ranging from ten to 40 per cent. National Insurance contributions are at a fixed rate under class two and four. For more information visit HM Revenue & Customs.
If you are considering this and need any help or advice why not contact Omni Chartered Accountants on 01902 837408 or request a free of charge call back? Alternatively, click here to contact us.
We want you to be enthusiastic, motivated and enjoy your new journey as a sole trader!