If you’re looking to set up shop for yourself, you might be thinking about becoming a Sole Trader in order to do so. So we’re going to be talking you through the advantages of being a sole trader when you’re setting up your online shop.
Becoming a sole trader is one of the most popular ways to register a business within the UK. In 2018 there were 3.4 million sole proprietorships in the UK – that’s 59% of the overall business population, so you can see how popular becoming a sole trader is in the UK and there are a few reasons for that.
How to register
If you have chosen the route of becoming a sole trader over registering for a limited company, then you can do this with no cost to yourself.
When registering all you’ll need to get started is a business name to trade under which can be either your own name or a chosen business name, but this must be displayed on any official paperwork such as invoices and letters, so choose wisely. Once you’ve chosen your trading name, you simply need to register for Self Assessment and file a tax return every year.
Sole trader tax structure
The sole trader tax structure is quite easy to understand. You simply pay income tax based on your business profits. When completing your self-assessment tax return each year, you’ll need to detail your income and expenses. You’ll also need to pay Class 2 NICs throughout the year – you will pay this with your income tax and the figure will be calculated from your tax return.
*Please note that from April 2018 the Government has moved into ‘Making Tax Digital’ for businesses which means sole traders who pay income tax and Class 4 NICs National Insurance Contributions) will be required to use the new digital services. This means businesses now need to provide HMRC with quarterly updates under MTDfB – affecting around 3.3 million self-employed individuals.
If your business will hit £85,000 of annual turnover within the year, you will need to apply for a VAT number and you’ll then be able to charge VAT on your products.
Other advantages of being a sole trader
As a sole trader, if your business has grown and you need a little extra help, you can take on employees under the sole trader structure, just like any other business. However, you will need to look at operating a PAYE (Pay As You Earn) payroll system in order to collect income tax and NICs from your employees to pay HMRC.
You’ll also be able to take advantage of lower accounting costs as a sole trader, as most accountants charge less for company accounts and advice because there is less work to undertake.
You’ll also have full control as the business owner and be able to make decisions without any consultation. Alongside this, you’ll also own all the assets of the business and any profit it makes, but also be responsible for all debts and liabilities.
Due to the additional risk associated with becoming a sole trader, you may want to change your business status from a sole trader to a limited company at a later date, as the size and nature of your business can change quickly. You may still be able to use your trading name providing someone else hasn’t already registered the name.
For further tips on how you can help your business grow further take a look at these 10 common mistakes you should avoid when starting your online shop.