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Are you already trading or considering starting a business as a sole trader? TaxAssist Accountants can help as we are a 'one-stop-shop' for accountancy services and tax advice for independent businesses and self-employed professionals.

Setting up as a sole trader

You should look at setting up as a sole trader if you are self-employed or plan to become self-employed in the near future. The UK Government revealed that 76% of British small businesses were sole traders. A sole trader is someone who works for themselves.

When you register as a sole trader, you agree to accept personal financial risk. As your business is not a separate legal entity, you would be personally liable for any debts or legal action against your work. This differs to a limited company, whereby business owners only have limited liability.

Deciding whether to set up as a limited company or not is a key decision for all business owners. There are a number of key differences, including  tax advantages when changing your business status from a sole trader to a limited company. You can find further guidance on limited companies here.

If you do decide that being a sole trader is right for you, consider the tax implications when you register as self-employed. Depending on your annual income, you may also be required to become VAT-registered.

As with any business, when you work as a sole trader, you should keep detailed records of all your income and expenses. Basic bookkeeping software can make it easy to log invoices, receipts and expenses. This makes it easier when the time comes to submit your self-assessment tax return to HM Revenue and Customs (HMRC), which is a legal requirement for all sole traders.

If you are still figuring out how to set up as a sole trader and you are taking time to define your business proposition, we can help you to finalise a detailed business plan. This acts as the roadmap for your start-up business and can provide clarity and certainty for sole traders seeking business finance from banks or alternative finance lenders.

Business name registration

When it comes to registering a business name, operating as a sole trader is less formal than a limited company. As a matter of fact, you can choose to trade self-employed under your own name, rather than a business name. You do still have the option to register a sole trader business name if you so wish.

Just be mindful that if you are a sole trader you cannot use the following terms to describe your business:

  • Public limited company (Plc)
  • Limited (Ltd)
  • Limited liability partnership (LLP)

Using these terms would falsely portrays your self-employment as operating under a different business status.

A sole trader business name should be given careful thought and cannot include trademarked words or phrases.

Tax for sole traders

Self-assessment is the system used by HMRC to collect income tax and National Insurance contributions (NICs) from self-employed profits. You will need to register for self-assessment with HMRC and TaxAssist can help you with this.

The key dates for tax returns and payments for sole traders are as follows:

31st January
Deadline for submission of tax return for previous year.
Deadline for balance of tax due for previous year and first payment on account for current tax year.

31st July
Deadline for payment of second payment on account for current tax year.

It’s important to consider the impact these payments on accounts can have on cashflow. After your first year as a sole trader it is possible that you may be required to pay 150% of your tax for the first year by the following 31st January and a further 50% by the following 31st July.

To ensure you provide an accurate account of your annual earnings, it’s important to keep accurate records of your sales and expenses. Our bookkeeping services can do all the legwork for you, so you can focus on growing your business. By using a professional TaxAssist Accountant, you’ll have peace of mind that you will pay the right amount of tax – at the right time, to avoid late filing penalties from HMRC.

If you are a self-employed subcontractor in the construction sector, the Construction Industry Scheme (CIS) operates special tax rules outlining how payments must be handled by contractors. As a sole trader subcontractor, your contractors may be required to deduct income tax at 20% from your invoices and pay it directly to HMRC unless they register for gross payment status. However, you will still be responsible for managing and organising accurate self-assessment tax returns annually.

VAT registration

If you anticipate earning £85,000 a year or more from your sole trader income, you must also register for VAT with HMRC. As a VAT-registered sole trader, you will be required to charge customers VAT on all eligible sales and pay this directly to HMRC when reporting your VAT returns.

There are benefits to being VAT-registered, as you can also reclaim the VAT on eligible goods or services you purchase for your business.

Special considerations

When registering a business as a sole trader, you may also have to consider sole trader insurance, as well as specialist licenses or permissions to lawfully operate. For example, self-employed taxi drivers require either a Hackney Carriage licence or a Private Hire Vehicle (PHV) licence.

Meanwhile, if you wish to test the water with selling goods as a street trader, you must obtain a licence from your local council. If you’re starting out in the catering industry, your premises will need to be inspected and approved to sell food to the general public.

Can TaxAssist help me to set up as a sole trader?

TaxAssist Accountants can look after your registration as a sole trader quickly and efficiently so that you can concentrate on setting up and running your business. We will need basic information from you in order to go through the registration process using our agent account.

Can you be a sole trader and be employed at the same time?

If you wish to run a self-employed business as a second income to supplement a full-time or part-time salary, you will need to check that your employment contract allows for this. Also remember, you must declare and pay your own tax and National Insurance on self-employed income via self-assessment tax returns. Within your annual self-assessment, you must declare your employed income using P60/P11d forms and any other income for the corresponding tax year.

Other ways TaxAssist can help you as a sole trader

There are many services we offer that are applicable to growing sole traders. We offer highly competitive plans for digital expense scanning using the Dext platform, formerly known as Receipt Bank. This software allows you to capture and send your receipts directly to your accountant so we can keep on top of your books.

We can also prepare regular management accounts and year end accounts at competitive rates to formalise your annual self-employed income. This can help to you to better understand how your business is performing, while formal year end accounts may also be necessary for sole traders to apply for a mortgage or raise finance through high-street banks and lenders.

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