Becoming a Sole Trader
You will be joining many millions of people who make up a considerable proportion of UK businesses. Starting as a sole trader may make more sense, rather than becoming a limited company, but we would always recommend speaking to an accountant to make sure that your business is set up to maximise the tax benefits.
A sole trader will be self-employed people who run businesses, you manage your business and finances and any money made as profit is yours to keep (after paying tax!!).
If you earn over £1k you should be registered with HMRC and completing self assessment forms. Even below £1k if you are running a business to make profits, produce goods to sell, selling items online or are earning a commission or paid for your service – you are trading – so should be registered but there is no requirement until you hit the £1k amount.
• You will need to keeps business records and records of all your expenses.
• Complete the self assessment each year, you can do a paper version or online. Online has a later deadline at the end of January so may be better for you.
• You then have to pay income tax on any profit you have made and pay National Insurance contributions.
• If your turnover is coming close to £85k you will also have to register for VAT. Some self employed people do this whilst under the threshold, mainly because having a VAT number gives them more credibility with larger customers.
How do you go about becoming a Sole Trader?
You will need to provide HMRC the following:
Business Name - What should your business name be?
You can trade under any name, and it doesn’t need to be registered but the name needs to be on all your business paperwork, invoices, letters, websites.
As a sole trader name
• you can’t use Ltd or Limited in your company name, or;
• use offensive language, or;
• sensitive words of expressions (unless you get permission), or;
• and always check the internet, companies house for similar names and look for any existing trade marks.
You don’t want to spend money on marketing, websites, vehicle wraps etc. to then find someone challenges the use of your business name.
National Insurance Numbers & DOB
You will need to give your NI number and DOB to HMRC so they can verify your identity. If you have just moved to the UK, you need to get a NI Number before you start.
You will need an address for HMRC to contact you, you can use your home address but your business will be advertising, creating invoices, online directories, distance/online selling etc. that will also need an address – so be very careful when using your home address for your business.
You can use a virtual business address so that you can keep your home address private and confidential. If you work from your van or Kitchen table and don’t see the reason for a physical office you may not think you need a business address. However, a business address can have plenty of advantages, so it’s worth exploring to see if it’s something you could benefit from.
Telephone number and email address
How to Register as a Sole Trader
Everything is done online now, so if you can manage to do it all via computer it does make your life so much easier.
What do I have to do to be a sole trader?
- Keep Business Records
Yes, the dreaded paperwork, you need to keep records of everything you spend and all your sales. Thankfully the days of carrier bags of receipts is nearly over, with many apps that can do your invoices and you can take photos of receipts and keep all your records up to date.
- Pay your tax
You will need to complete your self assessment every year, never miss the deadline as there are fines. Plus you will also have to pay NI contributions, the amount you pay depends on a few factors so check out the NI rates and factor this in when thinking about your final profit and sales.
Even though you are a sole trader you may need help with bookkeeping or if you need to employ someone to help you. Being a sole trader doesn’t mean you work solely on your own, it means that you are the sole owner of the business, so you can employ people. But, you will need to register for PAYE at HMRC – you will need to provide many of the same details as registering for self-assessment. Employing people also means other responsibilities to consider, such as pensions, minimum wages, employment law etc.
The most important point of being a sole trader is that you are personably liable for any losses or debts that may occur. Which means that you have to pay back any money from your personal assets – car, house, bank account.
Why is separating your personal address from the business address important
Your business address is the place that customers and clients will associate with you, it will appear on your website, on invoices, business cards, on back of vans, online directories (such as yell).
For many that work trades your office is your van and no need to have a physical office for people to visit you, so many use their home address, some even put a business sounding name before the address to make it sound like offices..
You could also rent or buy an office space – if you need storage this may be an option but with many storage companies offering cheap prices, you may be better saving your money. And, if you can work from the van or kitchen table why waste money on a space you would rarely use.
But, privacy is a main driver in why many sole traders contact us to use our business address.
Do you really want to put your home address online
If you sell online, you have to provide a correspondence address on your site to meet your distance selling obligations.
For convenience, having all your HMRC, and day-to-day mail coming into one address is easier for you.
We can offer a sole trader business address in London or outside London, it will very much depend on whether the location is important to your customers.
Give your customers and clients a good professional impression of your business.
If you have already registered for self employed status at HMRC you can easily change the address at HMRC by logging into your online account.
I-Support Business can give you a central London business address or a business address in Sussex, in minutes with our online application forms.
We can post your mail or scan and email it direct to your inbox or upload it into your online account so you can view it from the safety of your online dashboard. Any scanned mail is securely shredded, but you can also have it posted. You are in control of how to manage your business mail.
This brief article covers what makes a sole trader, how do you register with HMRC, naming your business and what is a sole trader responsible for..
Date: 18th July