Getting your business started as a Sole Trader
Setting up your own business can be a daunting prospect, but with the right business idea and an understanding of your business structure, your foundations are already in place.
One of the first decisions that you will need to make is to decide what business structure you want for your business. Whether it’s a Limited Company or a Sole Trader (otherwise known as self-employed), you’ll need to choose what works for you.
What is a Sole Trader?
Setting up a business as a Sole Trader is simple and means that you can start trading straight away. As a Sole Trader, you are personally responsible for your business. You will have the flexibility to choose your working hours, what projects you work on and what you charge for your services, as well as having the benefit of being able to keep your after-tax profits.
If you do choose a business name and want to protect this, you can also incorporate a Limited Company with Companies House and submit dormant accounts each year. Then you have the option to start trading through your Limited Company in the future.
Weighing up the pros and cons
As with everything you do, it is good to weigh up the pros and cons:
- As the sole owner, all of your after-tax profits can go straight into your pocket.
- Lower admin burden, as you have less filing obligations
- You are personally liable for any losses that your business makes.
- There’s no one to share responsibility with. This means that all important business decisions fall to you.
- It could be more difficult to raise funding and look less favourable in business
Setting up a Sole Trader
Now that you have a good understanding of the structure of a Sole Trader, you are ready to start setting yours up. Just follow the steps below and you’ll be trading in no time at all.
- Getting started
Before you do anything, you will want to consider if you want to trade in your own name or want to choose a business name. Both of these will then need to appear on any official business paperwork, such as invoices and letters.
- Get registered
Once you start trading, it’s best to register with the HMRC as soon as possible. At the latest, you must be registered by 5 October on your business’ second tax year, otherwise you could be fined.
- VAT registration
VAT ‘Value Added Tax’
It is not compulsory to register your business for VAT unless you have exceeded the VAT threshold in the past 12 months, or you will in the next 30 days.
But you may want to voluntarily register, as there could be advantages of being able to claim back VAT or applying for the flat rate scheme. You may wish to discuss your options with an accountant, if you are uncertain about registering for VAT and which scheme is right for your business.
- Get insured
It is important to ensure that you have the right insurance in place for your business and this will protect you if a claim is made. Your insurance options will vary depending on the type of company you run, and the risks that you will face. However most Sole Traders will require:
- Professional Indemnity Insurance – worth considering for your business if you provide advice or other professional services to other businesses. This will protect you in the event that you provide incorrect advice that causes your client a financial loss.
- Public Liability Insurance – vital cover for many businesses. This will protect you if someone is injured or their property is damaged because of your business.
- Open a business bank account
It’s not a legal requirement to have a separate bank account as a Sole Trader. However if you have both your personal transactions and business transactions all going through one account, this could take you more time to identify only business transactions when you complete your personal self-assessment tax return.
So, to make life easier, you could open another bank account in the format of ‘Joe Bloggs trading as’. It can often be difficult and time consuming to open a business account via a high street bank. But Aardvark Accounting can help, this will save you time and simplify the application process.
- Start-Up expenses
If you have any start-up expenses when getting set up, these can be claimed against any future revenues that your business generates. Always keep the receipts and remember to include them on your personal self-assessment tax return.
- Start trading
Now that you are registered and have everything set up – let the fun begin!
- Don’t forget your taxes
If you’re used to having PAYE deducted from your income and automatically paid to HMRC on your behalf, it’s now all change! So, you must get into the routine of thinking about what personal taxes you might have due once you’ve submitted your personal self-assessment tax return.
It will be a combination of income tax, class 2 and 4 NI contributions based on your profits for the year.
How Aardvark Accounting can help you?
We can help you, complete HMRC and VAT registrations, set up the company bank account, provide recommendations for insurance and complete your personal self-assessment tax return.
Plus, we’re the best value for personal service and have tailored accountancy packages to suit you. You’ll have someone on hand to make sure it’s all set up correct and keep you on the right track, contact Aardvark Accounting today. We’ll do the “aard” work for you!
01425 471917 or contact us here