Setting up as a sole trader remains the most popular way to start trading. It may feel daunting at first, but there is no better time to do it then now. With over 3 million sole proprietorships in the UK, accounting for 56% of UK private sector businesses, take comfort from the fact you are in good company and there are many resources out there, so you can start out in confidence.
Find out what it means to be a sole trader, how to set up as a sole trader, and your responsibilities.
WHAT IS A SOLE TRADER?
If you are a sole trader, you are a self-employed person who owns and runs their business as an individual.
As a sole trader there is no separation between you and your business. This means that you get to keep all your business’s profits after tax, but you are also legally responsible for all aspects of the business including any debts or losses.
You must also follow certain rules on running your business and naming it.
CHOOSING A NAME FOR YOUR BUSINESS
When considering a name for your business it can be your own name or something different.
Trading names for sole traders must not:
include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
be offensive
be the same as an existing trademark
contain a ‘sensitive’ word or expression, or suggest a connection with government or local authorities, unless you get permission.
You do not need to register your name but must include it on official paperwork.
For more information on naming your sole trader business, check out this guide on how to register a business name in the UK.
WHEN YOU NEED TO SET UP AS A SOLE TRADER
You need to set up as a sole trader if any of the following apply:
you earned more than £1,000 from self-employment between 6 April 2020 and 5 April 2021
you need to prove you’re self-employed, for example to claim Tax-Free Childcare
you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits
SETTING UP AS A SOLE TRADER
To set up as a sole trader you will need to tell HMRC that you plan to earn income as self-employed. You can do this online by registering for Self Assessment.
Once your online account is complete, you’ll get information about your tax status, tax code and when your next tax return is due.
YOUR RESPONSIBILITIES
After you’ve registered, you will have a few important responsibilities you need to be aware of.
You’ll need to:
send a Self-Assessment tax return every year
pay Income Tax on your profits and Class 2 and Class 4 National Insurance - use HMRC’s calculator to help you budget for this
You’ll need to apply for a National Insurance number if you’re moving to the UK to set up a business.
You must also register for VAT if your turnover is over £85,000.
CONSIDER HIRING AN ACCOUNTANT TO TAKE THE STRESS AWAY
Managing the finances of your business can be complicated and scary. It is important to submit your self-assessment return each year to HMRC and keep track of all your accounts to avoid any hefty fines.
Our expert accountants can take the weight off your shoulders and manage all your accounts and finances so you don’t need to, or if you want to be more involved, we can offer our advice and help you understand your business accounts in a non-jargon way.
With years of experience helping start-ups and small businesses, we can help you with the process of setting up as a sole trader with HMRC, setting up your government gateway account and implementing an accounting system to keep the records which are required to support your annual return. We can also assist with any start-up support, such as business plans and setting up accounting systems, VAT, bookkeeping and more.
Learn more about our accounting services we provide. Call the team on 01293 526859 or email us at info@lwbs.co.uk