If you’re just about to start your own business, or have been thinking about it for a while but aren’t sure how you should go about getting set up, we’re going to run through the benefits and how you can register as a Sole Trader.
Becoming a sole trader is one of the easiest ways to set yourself up for business. The process is quite straight forward and the accounting and record-keeping are minimal. There are other options out there but deciding which way is best for you will depend on a few things.
Becoming a sole trader is a more straight forward self-employment, but there are some additional risks associated with it compared to becoming self-employed for instance. As a sole trader, you are personably accountable for the business either being sued or failing and your personal assets will also be at risk.
For most first-time business owners, if your business is low-cost and unlikely to incur any debts then becoming a sole trader will suit you perfectly. One of the biggest benefits of becoming a sole trader is that you keep all your business profits after tax which means your cash flow will be slightly increased to help you keep the business going.
In addition, you can also claim back money for any business expenses. Essentially this is anything that is tax-deductible such as; stationery, IT equipment, premises rental, internet access, business phone bill, travel to and from customer premises if necessary i.e. train tickets, motor expenses.
Becoming a sole trader also means that you’ll have relatively low start-up costs. There is no fee to register as a sole trader with HMRC as there would be if you set up a limited company, for example. You’ll also benefit from more privacy. A limited company has to register with Companies House and provide information which is then public record. A sole trader does not and therefore you’ll be able to keep your business private.
If after a few months or a few years, your business really starts to take off, as a sole trader you can change the structure of your business easily. You may do this to take advantage of tax allowances for instance, but being a sole trader gives you that option if there are ever any opportunities in the future.
How to register as a sole trader
Setting yourself up as a sole trader can be quick and simple, as we mentioned earlier. All you need to go is register for self-assessment with HMRC (HM Revenue and Customs), and its generally a good idea to do this as soon as you begin trading. Beware that after you’ve registered with HMRC, if you miss the self-assessment deadline, for that tax year you’ll receive a penalty of £100 if your tax return is up to 3 months late. If you appoint an accountant they will ensure that you have everything ready for the deadline, but if you’re choosing to do your tax return yourself, you’ll need to make sure that you have everything you need.
You’ll need to have chosen a business name and ensure that it isn’t already being used. You also have the options to trade under your own name too, but it’s always a good idea to make sure to include the trading name of the business on any stationary etc.
From here you’re ready to start trading!
Another great thing about registering as a sole trader is that you can also employ staff to help you run your business. If you get to the point where you choose to do so, you’ll have to notify HMRC and collect income tax and National Insurance contributions from your employees’ monthly salaries as well as run a PAYE (Pay As You Earn) payroll scheme.
Keeping all your documents, orders and receipts in one place and in monthly order will help you to keep on top of any paper word required when the time comes for your self-assessment tax return. This can include things like:
- Payments made in and out of your bank
- Business expenses and;
- PAYE records.
You won’t need to register for VAT (Value Added Tax) as a sole trader until you’re annual business turnover exceeds the threshold of £85,000, although you can choose to register for VAT at any time.
You also don’t need to set up a business bank account as a sole trader and can have the money you made deposited straight into your personal account. This can make accounting slightly harder, separating business costs and profit from your personal money, but if you’re just starting out then this can save you time and money having to set up a business bank account.
All in all, setting up as a sole trader gives you the flexibility you need as a new business but also the option to grow over time.