Set up as a sole trader
Are you thinking of setting up as a sole trader but not sure where to begin? There are a few important steps to follow to make sure you do it right.
Firstly, work out whether being a sole trader is the right option for you. You can be a sole trader if:
you’re running your own business as an individual.
you work for yourself.
This is not the same as owning a limited company or being in a partnership. Being a sole trader is simpler than either of those, you’re classified as self-employed for tax purposes, but you are responsible for your business’s debts and have some accounting responsibilities.
You’ll also need to choose your business name, although you can trade under your own name. There are some rules for business names, for example, as a sole trader your business name cannot include ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’, or ‘plc’. You must also include yours or your business name on official documents.
You will also need to check what records you need to keep, and this is very important so that you don’t encounter problems or fines later in your business journey when it comes to filing your tax return. You’ll also need to keep a record of your personal income and decide what accounting method to use, but a bookkeeper or accountant can help advise on that.
You will need to register as a sole trader and register for self-assessment. You just register if:
you earn more than £1,000 in a tax year.
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 from benefits and state pension.
If you register late or do not register you may get a penalty.
You will need to check what taxes apply to you. There is a useful tool available on the HMRC website.
Once you know the above tax info, it’s then a good idea to plan for your tax bill. You may need to pay income tax on your profits as well as National Insurance contributions. HMRC also has a useful tool to estimate your tax on their website,
Finally, it’s a good idea to build a support network. This can consist of all kinds of people or businesses but it’s useful to have a network of people in the same industry, an accountant and bookkeeper and a business mentor can also be a good idea. There’s also unlimited resources online too.
Above information provided by HMRC.