Thinking of becoming a Sole Trader? Here are a few helpful tips about how to get started and what to look out for.
What are you responsible for?
Aside from the obvious key responsibilities of running and growing your business, there are a few other very important things you need to be aware of and will be responsible for, as a Sole Trader. These include:
- Keeping records of your business’ sales and expenses; When you first start out, a simple spreadsheet will be enough to keep this under control and example book-keeping templates can easily be found online. As you grow, there are plenty of great softwares that can help you, as well as book-keeping and accounting professionals.
- Sending a Self-Assessment tax return every year; The HMRC can provide lots of help and support online and over the phone to help you with this and again, there are great professionals out there who can help you too.
- Paying Income Tax on your profits and relevant National Insurance; The difference between your business sales income and outgoing payments is your profit and is what makes up your personal income once all business debts have been paid. You are liable for ensuring that the relevant personal Income Tax and National Insurance fees are paid.
- Your business debts, bills and receipts; As a Sole Trader, you are personally responsible for any debts the business accrues. Ensure you have a good system in place for monitoring and making payments.
- Registering for VAT if your turnover reaches the VAT threshold; Keep an eye on your total income (before expenses and outgoings). If this reaches more than £83,000 (current VAT threshold as at August 2016) you are required by law to be VAT registered.
- Registering with the Construction Industry Scheme (CIS) if you’re a contractor or sub-contractor in the construction industry.
It’s important to understand that being a sole trader means you do not have a separate legal existence to the business from yourself. This means that you are personally liable for the company’s debts, and you may have to pay them out of your own pocket. This is called Unlimited Liability. If you are starting up a business that won’t build up big debts, then becoming a sole trader shouldn’t be too risky, however if your business is likely to build up debts then it is wise to consider becoming a Limited Company to reduce your personal risk. Regardless of the option you choose, it is also your responsibility to ensure that you run your business legally, honourably and without false pretence.
If your business’ VAT-able turnover is more than the VAT threshold (currently £83,000 a year), you will need to register for VAT. When you’re VAT registered, you can charge your customers VAT on VAT-able goods, which then needs to be paid to HMRC. However, it’s not all bad! You can then reclaim the VAT you pay on the goods and services you buy for your business. It’s always good to get advice and support from an Accountant, especially as your business grows. They are the professionals and you never know – there may be additional savings and investments they can make you aware of.
Wearing many hats
Being a Sole Trader you’ve got to be good at a few different things as well as the industry of your business. You will have lots of little administration tasks to take care of, which can be tricky to keep on top of when you also have lots of other things to think about. To run your business successfully you’ll need to be good at sales and marketing – or find someone who is! Understanding the importance of all these other tasks is crucial – if you don’t make enough sales or keep your customers happy, your business will not make any profit.
Good luck with your new venture!
For more information and how to register your business visit – https://www.gov.uk/set-up-sole-trader/overview
My thanks to our guest blogger Mikkie for this article. If you would like to know more please contact her:
Mikki Harris, MOMENTUM Business Support Ltd | make it happen. T: 01903 688789 / M: 07834 731615 / E: firstname.lastname@example.org
If you would like to be a guest blogger or you would like me to write a blog for you for this website, please get in touch: 01825 761890 or email email@example.com