Set up as a Sole Trader: Overview
If you want to start a business of your own, setting up as a sole trader is one of the simplest ways to do so because firstly setting up as a sole trader does not require much of paperwork and its accounting and record-keeping is fairly straightforward and direct. A sole trader is defined as someone who is his or her own boss and has complete control over the business and how to run it. UK government is more than willing to encourage individuals who are interested to start with their own business as a sole trader and a sole trader ownership is the most common type of business ownership out of three most common ones: Sole proprietorship or sole trading, limited company and partnership. It will not be wrong to say that being a sole trader is being self-employed because where sole trader is nothing but your business structure, being self-employed implies that you work for yourself and not for an employer.
Starting your business as a sole trader is one of the best ways to test the water and explore the market before you go all out and establish your limited company and many established businesses in the United Kingdom started as a sole trader in their inception years. As per the statistics, almost 60% of the businesses in the United Kingdom are established and running as a sole trader i.e. approx 3.4m businesses out of total 5.6m and thus it will be not wrong to say that the sole traders are the driving force of the UK economy.
Considering the very fact that being a sole trader means that you are an individual who has started his or her business, size of a sole trading business is normally small in size with a less turnover and less no of employees, if there are any. Majority of sole trading business in the UK are in service sectors, for example hairdressers, shops, real estate agencies, wedding photographers, make-up artists, bed and breakfast hotels.
Starting your business as a sole trader is a wonderful option, especially if you are not sure of the market and which route your business is going to take; however rules and regulations of the United Kingdom sees all types of business structure with same eyes i.e. UK law makes no distinction between the business and the individual or the sole trader and it simply means that in case of any business debt, you as a sole trader have to meet the expenses and clear the credit from your personal wealth or finances and no one else, but only you will be responsible for the failure of your business.
How to register yourself as a Sole Trader in UK?
The best part of being a sole trader is to know that you are own boss and you are not working under someone, however like every good thing in life, it has its bad or tough part too, which is to register yourself as a sole trader with the government agency of the United Kingdom i.e. the Her Majesty’s Revenue and Customs (HMRC). As a sole trader it becomes hard to decide when and at what point to register as a sole trader, for example you as a sole trader should register if you are selling your handicrafts on Amazon or not? And considering the fact that the HMRC makes no distinction between a sole trader and any other business structure, it becomes all the more important to be on the right side of the law. HRMC categories as a sole trader if:
- Your annual income is more than £1,000 from your business between the tax year i.e. between 6th April 2019 and 5th April 2020.
- If you are claiming benefits such as Tax-Free Childcare, you need to produce enough proof that you are a sole trader i.e. you are self-employed.
If you want help to qualify for benefits.
As per the guidelines of the HMRC, it is mandatory for you, as a sole trader to register yourself if you meet below mentioned criteria:
- If you have bought goods with the intention of reselling them.
- If you have made goods with the intention of selling them and earn a profit.
- If you are selling or buying on behalf of others for financial gain and
If you are getting paid for providing service.
As a sole trader, before you start with your business operations, you should run through the mandatory checklist and see if you have taken care of following issues:
- If you have registered yourself as a sole trader with the HMRC?
- If you have obtained all the necessary permissions needed from your local authority?
- If you have put the necessary insurance, public liability in place?
If your financial record-keeping system is in place and if you have contacted HMRC in order to register for VAT?
- Check if you have got your name on all your business stationery i.e. letters, invoices, receipts and cheques?
- If you are clear and set terms and conditions for your customers as in when the invoices have to be paid?
In order to register yourself as a sole trader with the HMRC, you simply need to inform or notify them about your intention of start your own business and registration as a sole trader is a quick and easy process and can be done by the following ways:
- Register online on the website of HMRC and complete the online form.
- Take the print out of the filled form and sent it at the office of HMRC by post.
- Update HMRC about the same by contacting them on 0300 200 3310.
Your responsibilities as a Sole Trader
Before you start your business as a sole trader, it is important to take care of and fulfill certain legal requirements, such as:
- Put everything on paper: It is important for you to keep everything on paper i.e. keep records of your business expenses and sales. Also, whether you are starting the business on your name or some other name, make sure that it appears on all the business stationery such as letterheads, business cards etc.
- Select and use the right name: You might think that what’s there in a name but in real it is important to select the right name since a wrong one can get you into difficulties. You have to be careful about certain words and names which are restricted by the Companies House and also under the Business Names Act 1985, for example International, Federation etc. Being restricted does not mean that you cannot use them but you have to get prior approval of the concerned authorities. While selecting or choosing a name, you need to be watchful of the fact that the selected business name is not same or almost similar to that of another business, trademark or company because if there is any conflict in the name, you might have to face legal consequences from the owner of selected name. So, in order to save yourself from any such consequences, it is always better to run through the registers of Companies House, which is readily available and open to public on their website and in case you are not sure even after checking the registers of Companies House, you can take help of an authorized solicitor who can perform the necessary checks and also ensures that nobody copies your business name in the future.
- Inform the authorities: In this case the concerned authority is HMRC and you have to notify them well in advance before you start with your business operations. HMRC expects you to inform them within 3 months of starting up, starting from the last day of your first month of trading and in case you fail to do so, you will be liable to pay fine of £100.
- File your returns on time: As a sole trader it is your responsibility to file Self-Assessment tax return every year to the HRMC as per the deadline. In addition to this, you are also required to pay the applicable Income Tax on your earned profits and Class 2 and Class 4 National Insurance Contributions.
How Nomisma Solution Accounting Software Will Help Sole Traders?
As mentioned above, you need to register yourself with the HMRC before starting your business operations and in order to do so, you would be required to submit Self-Assessment tax returns to the HMRC within the pre-decided timeframe. As a sole trader, you have to take care of lot of things starting from daily business operations, mundane administrative tasks, accounting and bookkeeping, filing of Self-Assessment tax returns and income tax just to name a few and if you decide to do all by your own, you will end up exhausting yourself beyond recovery. Also since majority of your time will be going in taking care of mundane and taxing tasks, you will be left with no time to spend on productive tasks and on business operations.
Thus, although as a sole trader you are a little tight on your budget, it is highly recommended to invest in a good and reliable accounting software that help you in submitting your Self-Assessment tax returns to the HMRC directly and well within the deadline. The very fact that your taxes and returns are getting filed on time is nothing but very comforting and thanks to the daily innovations in the world of technology, there are lot of accounting softwares available out there, however you need to check your budget and if the software is going to serve your purpose or not. One such accounting software which is quite popular amongst sole-traders is Nomisma Accounting Software. Its self-assessment and bookkeeping features is a life saving boon for the sole traders and thus the software can take care of submitting self-assessment tax returns to HMRC directly from the system. Apart from these features, it also helps you to focus on better and productive tasks by reducing the time spent by you on tedious and laborious admin tasks. It is not only the feature part that makes our Sole Trader Accounting Software a desired software, but its 14-day trial feature is something which every sole trader would like to go for, before subscribing for the complete package. Try Nomisma Accounting Software today.