Starting A Business As A Sole Trader

BradYoung04 By BradYoung04, 23rd Apr 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/2u12u6p0/
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Find out how to start a business as a sole trader in the United Kingdom.

Starting a business as a sole trader

There are around three and a half million people currently working as sole traders in the UK, spread across all sorts of one man bands, from contractors and hairdressers to plumbers and photographers.

Sole trading is suited to highly disciplined people who relish the pressures of running a business by themselves. The rewards include total control over the business and being able to enjoy all the profits. However, if you become a sole trader, there’s no legal distinction between you and the business. So any business debts are your debts and if the business becomes bankrupt, so do you.

If sole trading is the right legal structure for you, this easy to follow guide covers what you need to know to help get started.

Registering as a Business

The first step in starting up is to choose the business name you want to trade under. This can be your own name, or you can create one.

You’ll need to check that your proposed business name hasn’t already been taken by someone else or is similar to a registered trademark. It’s best to check it against the National Business Register, or even request that your chosen name is added to the Register to make sure no-one else can use it in the future. It’s also best to trademark your business name.

Once you have your business name, it’s important to register your sole trader business as soon as possible with HM Revenue & Customs (HMRC). If you don’t, you may have to pay a penalty and miss out on potential V.A.T exemptions.

Tax and National insurance

It’s easy to register online with HMRC. You’ll just need to have your National Insurance number, the start date of the business, the name and the type of business to hand.

If it’s likely that your turnover will be over £79,000 a year, you must also register for VAT2. This means you’ll need to charge your customers VAT and pay it to HMRC. Once you’re registered, you can reclaim any VAT you pay to suppliers.

You’ll pay income tax on any profits your business makes and you’ll need to complete a self-assessment tax return each year you’re in business. This’ll detail your income and business expenses.

As well as tax, you’ll also need to make flat-rate Class 2 National Insurance contributions, often referred to as NICs3. This is payable every 6 months, but can be paid via Direct Debit for convenience. Depending on your level of profits, you’ll probably also have to pay Class 4 NICs along with your income tax. The amount you’ll pay is calculated from your self-assessment return.

To help make completing your self-assessment return as simple as possible, it’s crucial that you keep detailed financial records of your business’ income and outgoings, such as invoices, receipts and bills.

There are also other ways to make sure that your business continues to run smoothly.

Business Insurance

When you’re a sole trader, you and your business are seen as one and the same, so if your business becomes bankrupt, or a customer sues it, as the business owner, it’s you that’s liable. So in case things go wrong, it’s important that you protect your livelihood. There are various types of insurance that can cover you and your business:

Employers’ liability insurance is mandatory if you employ any staff, even just seasonally or on limited hours, such as a cleaner. This cover protects your legal liability if someone gets ill or injured because of the work they've done for your business.
Public liability insurance protects you if a member of the public’s injured or their property becomes damaged by you, so it’s particularly worth considering taking it out if your work brings you into contact with the general public.
Professional indemnity insurance covers you if a customer believes your work has led to a financial loss.
Products liability insurance protects you if your products are responsible for injuring a member of the public, or damaging someone’s property.
It’s also vital that you safeguard your business by keeping on top of your finances.

Managing Finances

You may be tempted to use an existing personal account for your business and although this is perfectly legal, having to try and separate business from personal spending at a later date can make completing a tax return painful.

The bank you choose for your business account doesn’t have to be the same as the one that you have a personal account with. When trying to weigh up what the various accounts offer, compare what you’ll be charged for the various services that you’ll need.

It’s worth noting that there are sometimes obstacles to opening a High Street business bank account, such as having bad credit or having no credit record at all. But if you’re looking for a business bank account with no credit check, perhaps you should look at the alternatives instead. For example, more and more small businesses are shunning the High Street banks and opting for online prepaid card accounts instead. These are a hassle-free alternative to what the traditional banks provide and they’re normally quick and easy to apply for online – without credit checks.

Alternatively, some companies offer a business start-up package that can include everything from registering a business name to ‘guaranteeing’ a business bank account, but these services can come with quite a hefty fee.

Whichever business account you settle upon, once it’s up and running, you should transfer what you want to use as your wages into your personal account, to ensure that what then becomes personal spending doesn't get mixed up with business transactions. It’s sensible to only buy what your business really needs – and not necessarily the flashiest and most expensive kit out there. And it may be best to hire equipment rather than buy it.

Starting a sole trader business may seem a little daunting, but once you’re up and running it can be immensely satisfying – as long as you keep on top of things.

Sources

http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/policy-europe-9.html
https://www.gov.uk/vat-registration/when-to-register (29 January 2014)
http://www.startupdonut.co.uk/startup/set-up-a-business/registering-as-a-sole-trader (2013)
http://www.kpsol.co.uk/employers_liability.html (2014)

Tags

Business, Business Law, Business Management, Business Startup, Sole Trader

Meet the author

author avatar BradYoung04
I am a MBA grad who can transform your business. Follow me for straight talking insights into running successful businesses in a fast paced world. I am always working or surfing in the Californian sun

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author avatar Rose*
26th Apr 2014 (#)

The trouble with business bank accounts is the fees!

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