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So you’re thinking of becoming a sole trader? Fantastic. Not only does working this way offer you greater flexibility and the opportunity to take full control of your career, it also happens to be the simplest way to start providing your services as a self-employed person.
In this jargon-free guide, we touch on everything you need to know when looking to register as a sole trader. We’ve also included a handful of other things to think about as you take your first steps into self-employment.
Every business needs a name. This can be as simple as your own name, something catchier, something professional sounding or even something witty if you think it’ll benefit your business – never rude or offensive though, the government is keen to make clear of that.
Added to this, you can’t include the word ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’ in your name, given these all suggest that your business is incorporated.
You should also avoid copying existing trade marks because you then run the risk of legal action put forward by the owner of the trade mark. Don’t worry though, all UK trade marks can be checked on the government website, where you can even register your own if you wish.
The only mandatory requirement when you go self-employed is to register as a sole trader for tax purposes. In simple terms, this is how you tell HMRC that you’ll pay income tax through the self-assessment, which you’ll need to file and pay every year.
While your sole trader registration doesn’t technically need to be completed until 5th October in your business’s second tax year, it’s worth registering right away – you don’t want to forget and receive a fine.
How to register as a sole trader:
Sole trader businesses need to be aware of and keep on top of their tax responsibilities. It’s therefore important that you have a firm idea of the tax you need to pay, along with the deadlines for these payments.
It depends on how much money – if any – you’ve earned from self-employment in the previous tax year. If the amount is over £1,000 you need to register as a sole trader right away.
There are other reasons to register quickly too, such as qualifying for tax-free childcare or to make voluntary class 2 National Insurance contributions so you’re deemed eligible for certain benefits.
Having completed your sole trader registration, you’re in a strong position to think about what else you can do to build a stable foundation for your business.
Let’s take a look at some other considerations when setting up as a sole trader:
When setting up as a sole trader you aren’t legally required to open a business bank account. This is because sole traders aren’t separate from their business in the way that a limited company is from its owners. Even so, plenty of sole traders choose to open a new personal account through which they can make and receive payments.
The thinking behind this is that it keeps your personal and business finances separate. This makes things easier when it comes to tracking income, expenses and in turn, working out how much tax you owe.
The last thing any sole trader wants to be doing is pouring through receipts, totting up expenses and calculating the amount of tax they owe in a mad rush before the self-assessment deadline. It’s why keeping on top of your accounts at all times – and from the word go – will make life a lot easier.
If this sounds daunting, don’t panic. You can always chat to an accountant who can explain everything to you in layman’s terms – from allowable expenses to VAT and tax deadlines – before taking care of these responsibilities on your behalf.
Even with the best will intended, things can go wrong in business. For example, you might make a mistake when working for a client which causes them to lose income. You could fall victim to a cyber attack, resulting in lost business. Or you might become ill or injure yourself, meaning you can’t work for a period of time.
It’s why many sole trader businesses choose to take out insurance from the very beginning, for peace of mind and to protect them financially. Whether it’s professional indemnity insurance to cover mishaps, public liability insurance for accidents, cyber cover or equipment insurance, there is plenty of protection available for sole traders.
That you always count on an expert like Nixon Williams to support you – from taking care of your sole trader registration to providing a range of trusted and tailored accounting services that save you time, money and help to ensure your tax compliance. View our accountancy packages for sole traders.