You’re a sole trader if you’re running your own business as an individual. You can keep all your business’ profits after you’ve paid tax on them. Setting yourself up as a sole trader is the quickest and simplest way to get your business up and running. Working as a sole trader is still a commitment. You make all the decisions and you are responsible for the administration, and being a sole trader doesn’t mean you have to work alone, you can take staff on.
You’re personally responsible for any losses your business makes, receipts for things you buy for your business, like stock or equipment and keeping records of your business’ sales and spending.
You must register with HM Revenue & Customs (HMRC) as soon as you can after starting your business. If you register later than 5th October in your business’ second tax year, you could be charged a penalty. If you start up as a sole trader during tax year 2014 to 2015, you must register before 5th October 2015.
You must complete a Self-Assessment tax return every year, pay Income Tax on the profits your business makes and pay National Insurance Contributions.
You must register for VAT if you expect your business’ takings to be more than £81,000 a year.
Choosing to operate as a sole trader offers great freedom and high degree of flexibility, but it is not the best route for everyone. You should consider your options carefully. If you are still considering the best way to run your business, Brookson provides a number of Free Guides that will help you make the correct choice.
Keeping accurate business records is really important to help you when you come to complete your Self-Assessment tax return, or answer any questions HMRC might have. You and the business are treated as a single entity for tax and administrative purposes, but you should still keep your business records and your personal records separate.
You must keep a record of all your sales and expenses. These are used to create profit and loss account for your business. The more detailed the records you maintain, the easier it will be to complete your return each year.
Employment Status (IR56)
As a sole trader you must be a genuinely self-employed worker not an employee. This does not mean that you cannot also do other work as an employee, but the work you do for your business must be done on a self-employed basis.
A guide to running your business
Operating as a sole trader doesn’t have the same legal complexity as running a limited company, but you need to make sure you understand some key issues. In this section we look at claiming the correct Expenses, explaining your Personal Tax and NIC obligations, considering some helpful Tax Planning and talking you through VAT should you reach the threshold. We also introduce you to some key Business Partners that Brookson believes can contribute to your success.
By working as a sole trader, without limited liability protection, it is essential to insure your business effectively. This demonstrates professionalism, and may be a requirement from your customers as part of any contract with them.
The main types of cover to consider are:
- Public Liability Insurance: Protection against claims for liability in respect of accidental bodily injury to third parties, or damage to third party property arising in the course of your business activities.
- Professional Indemnity Insurance: Protection in defence of claims made against you as a result of allegations of professional negligence. Cover includes legal defence costs and any damages awarded. Claims for negligence can be made against any company providing professional services.
- Personal Accident Cover: If you are injured in a work related accident and are unable to work then you are likely to suffer financial loss. Your employment status means you will more than likely have no other person to hold responsible.
- Employers’ Liability Insurance: Protection against claims from Employees for liability in respect of injury or disease that arise in the course of their work and for which you are responsible. Employers’ Liability Insurance is a compulsory insurance for all employers with limited exceptions in law.
We offer an exceptional insurance package through our insurance partners, Kingsbridge, covering all of these key elements.