Deciding to start your own business brings a mixture of excitement and trepidation. There is so much to think about; your business name, where to find your customers, marketing and media, and a hundred more considerations. However, before anything else, your first and the most vital task is to decide which business structure would suit you best. You need to consider your personal situation and preferences, but also to take into consideration your long-term plans for the business. We can assist you in making the right decision.
Two main options are either to become a limited company or to set up as a Sole Trader. There are pros and cons for each of these business structures, but the Sole Trader option is undoubtedly the simplest and quickest way to start your business. You need to tell HM Revenue & Customs (HMRC) you want to become a Trader, and they will send you a self-assessment tax return to cover all of your business activities for that tax year.
If you are thinking about starting your own business, we have a team of experts on hand to help make the right decision and guide you through the process of establishing yourself as a Sole Trader.
The freedom to choose what you do and when you do it, and even which clients you will take on has a heady appeal to many people starting their self-employed life.
Sole trader status is popular with many traditional trades such as gardeners, plumbers, and electricians.
However many small independent shops are also run by Sole Traders, including groceries, chemists and travel agencies.
There are many advantages to becoming self-employed.
You are in control
You answer only to yourself. Being able to make your own decisions is one of the main reasons why people choose self-employment, particularly if they have spent many years working for someone else.
Becoming a Sole Trader is not too complicated a process. There are no formal requirements such as needing a qualified Company Secretary or having to register with Companies House.
Your accounting processes are reasonably straightforward and only require you to be disciplined in keeping your business paperwork up to date.
As a Sole Trader, you have to submit your self-assessment tax return to HMRC each year. Being disciplined with your receipts and invoices will pay off.
If that is important to you, setting up as a Sole Trader enables you to keep your financial information and personal details private. In contrast, a limited company’s annual accounts are in the public domain as is the personal information of its Directors.
Profits stay with you
You don’t have to share any of the profit you make with partners as a Sole Trader.
Tools, machinery, and other essential items to use in your business can all be subject to tax relief.
Becoming self-employed as a Sole Trader is an exciting concept, but you must be aware of the disadvantages, and additional responsibilities you are taking on.
Our team of experienced professional accountants deal with many types of businesses across the UK. They can assist you with all aspects of Sole Trading, keeping you motivated on your path to self-employed success.
In particular, we can prepare your self-assessment tax return, file it with HMRC and manage all communications and negotiations on your behalf. This vital service will give you complete peace of mind and ensure you don’t miss any filing or payment deadlines. All you need to do is breathe a huge sigh of relief and focus on your business.
Self-assessment tax return
If you have always been an employee, it is likely you have never had to complete a self-assessment return. This is what HMRC will require you to do every year, and this is what causes a great deal of stress to many Sole Traders. It must accurately and transparently reflect all of your income and expenditure for the year with accompanying documentation. Ignorance is no excuse and HMRC will expect you to complete the return accurately and on time, otherwise, you will receive a fine.
HMRC ‘Payments on Account’
Sole Traders pay their tax through their annual self-assessments, but they must be aware that they will be required by HMRC to make what are known as ‘payments on account’. These payments are estimates by HMRC of the amount of tax you will be likely to pay for the current tax year.
These payments on account must be paid twice a year, by July 31st and January 31st, and each payment represents 50% of the tax you owe for the previous financial year.
New Sole Traders often get a nasty shock when they realise that their first tax bill is going to be much larger than they had expected, so it is imperative that you take this into account, and set aside enough funds to cover these tax bills when they become due. If you miss your payment deadlines, you will incur financial penalties.
You take all the risks
As a Sole Trader, all profits stay with you, but so do all the risks and any debt you incur as part of the business. This might be a problem if you wanted a larger scale operation which needs more capital input.
Difficult to ‘scale-up’
There is a limit to how much one owner can manage so if your long term business plan includes significantly growing your business and attracting bulk orders, that would be a drawback.
Getting the balance right
Sometimes being your own boss is not as idyllic as it sounds, as many self-employed people quickly become workaholics! Maintaining a good work/life balance is essential to allow you to operate efficiently and to continue to enjoy your Sole Trader lifestyle.
Our experienced team can help you through the process of setting up your own business and becoming a sole trader.