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Trading As A Sole Trader

The Answer To Our Success? We Place Values And Principles At The Forefront When Working With Clients.

- Jason Nellyer, M.D, OnTax Accountants Ltd

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Starting Out As
A Sole Trader

Freedom From The 9 To 5 Mentality!

Are fed up working for someone else?

Maybe you think you can do a better job than what they are doing or perhaps you are just fed up of living the typical 9 to 5 life.

If so, becoming a sole trader just might be the solution you are looking for.

The Dream Of Being Your Own Boss

If you want to be in control of what you do and how you operate your business then becoming a sole trader helps you do this. You will be in charge of making all the business decisions and you don’t have to answer to anyone else!

This will allow you to run the business the way you pictured it without any interference from anyone else. If you are looking for flexibility then becoming a sole trader can address this as you choose what hours you work.

 

Typical Scenario Of A Newbie Sole Trader

Desire
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Knowledge
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Ability
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Capital
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How Do You Register As A Sole Trader?

Info Required

You have now decided you want to become a sole trader but you are unsure exactly how you do this.

Well, all that you need to do to become a sole trader is provide us with some basic personal information such as your name, date of birth, national insurance number, address along with the date you want to register from.

Registering

We will then register you with HMRC for self assessment.

Do be aware that once you commence as a sole trader it is important to get registered with HMRC straight away as they tend to like issuing fines for failure to do this.

Someone needs to pay for their office party, but make sure it's not you!

UTR

You should then receive a personal UTR number (UTR stands for "Unique Tax Reference") in the post from HMRC.

This number will stay with you for life and so you need to keep a permanent note of it somewhere.

You need to pass this number on to us as we will need this when it comes to submitting your personal tax return.

Obligation

When you are registered as ‘self-employed’ you will then be required to produce a personal tax return each year and submit it to HMRC.

This will allow HMRC to ensure that you will pay the appropriate level of income tax and national insurance based on your income and profits from your business.

Another obligation you have is to pay class 2 national insurance.

Positive Thoughts About Making The Leap To Self Employment

Half The Battle is In The Mind - The Rest Is Opportunity You Create

"When All You Have To Fear Is Fear Itself, It's Time To Feel The Fear - And Do It Anyway!"

— J NELLYER
OnTax Accountants Ltd

"Being Your Own Boss Is The First Step Towards A Brighter Future"

— J NELLYER
OnTax Accountants Ltd

"Often The Key To Personal Happiness Is In Being Master Of Your Own Destiny"

— J NELLYER
OnTax Accountants Ltd

What Commitments Does A Sole Trader Have?

If you don’t like commitment then fear not as there is little you are required to do when you are a sole trader. One thing you will be required to do is to submit a tax return once a year.

This will consist of your earnings and expenses so all you need to do is hand us the relevant information and we will take care of the rest.

You should retain all of your paperwork but it is not likely that there will be a great deal of paperwork involved.

How Much Tax Will I Pay?

How much tax you will pay is likely to be a major topic when it comes to you deciding if you would like to be a sole trader, after all the less money you have to pay to the tax man the better!

How much tax you pay will be worked out on how much profit you make for the year.

Beware The Tax Trap!

The reason sole traders can end up paying a lot of tax is due to the fact that you will pay income tax on all of your profit made whether you leave the money in the business bank account or not.

A limited company though can leave funds sitting in it's bank account with you personally only being taxed on what is taken out of the business.

Therefore, you may need to consider if a limited company is a better option for you.

As a sole trader, you will pay income tax on taxable profits of the business as well as class 2 along with class 4 national insurance on the taxable profits.

On top of this, the taxman will ask for “payments on account” which is essentially advance payment of next years tax bill!

There are ways to avoid this, further information can be given on request.

Go Make Your Dream Reality!

We Are Your Business Cheerleader, Willing You To Succeed...

30 Years Commercial & Accounting Experience. Having run multiple business ventures I can provide you with advice that will save you fortunes and help ensure your success!

What Are The Advantages Of Being A Sole Trader?

Simple Setup

You will be glad to know that there is not much extra work you need to do when you are a sole trader apart from keep record of your sales and expenses.

If you are looking for an option which is low maintenance then being a sole trader is the way to go.

Something which might also interest you is that you will be able to claim tax relief on all business expenses and business purchases.

Simplified Registration

There is also no need to for you to register with companies’ house like you would have to do if you were a company, therefore you are saving on the registration fee and the hassle involved in registering. This also results in there being little paperwork involved and therefore little bookkeeping needs to be done.

No Need To File Accounts

You are not required to submit a set of accounts when you are a sole trader, this is a big advantage as it means that there is not as much work for you to do and therefore you will be saving time and money without having to prepare accounts. Although you should still keep good records of your paperwork as these will still be required when it comes to submitting your tax return at the end of the tax year.

Privacy

Unlike when you are a limited company there is no requirement for your personal information to be on public record, so you have more personal confidentiality.

Less Regulation

When you trade as a sole trader there are not as many restrictions on you as the sector is less regulated. This means that you have the ability to run your business exactly the way you would like to as there are not rules you must comply with. You don’t have to make business decisions based on fitting in with rules and regulations, so that is one less thing to worry about!

You will also have full control of your business when you are a sole trader this means all the decisions can be made by yourself without other people having their say. Ultimately, you can do things that suit you and you don’t need to compromise to please anyone else.

All in all, operating as a sole trader is the cheapest and quickest route to market, great for starting up and testing an idea to see if it will work.

What Sole Traders Say About Us...

"I Came In Crying, I Went Out Happy!"

Mr S Islam, Cafe India, Dunfermline

"I'll Use OnTax Accountants From Now On!"

Mr G Martin, Cacao Tree, Dunfermline

"Messy Paperwork - Sorted!"

Fred Wilson, The Sweet Shop, Dunfermline

"£10,000 Saved With OnTax"

Outriggers, Wellwood

So Are There Any Dis-Advantages To Being A Sole Trader?

Liability

When you are a sole there is a certain level of risk involved as you have unlimited liability.

You can he held liable for any debts that may occur and therefore your personal possessions can be taken in order to clear your debt, this includes your house and your car.

This is because when you operate as a sole trader you personally are the business, there is nothing separating you as a separate legal entity.

 

Finance

It can also be harder for you to obtain business finance such as loans when you are a sole trader, it can be seen as riskier to lend to a sole trader than to a business.

This might be an inconvenience when you are looking for some extra money to help you start running your business.

Further, you will pay tax on all business profits as opposed to when you trade as a one man limited company and only pay tax on the money you take from the company.

Many Hats

Another thing to think about is lets say you are a joiner. You understand everything there is to being a joiner. You wear a "joiners hat" so to speak.

But when you become self employed as a sole trader suddenly you are faced with wearing "many hats", a barage of new things to deal with; websites, marketing, finance, cashflow, liasing with an accountant, insurances..so on and so forth.

This may not be what you envisaged at first but it is the reality of being a sole trader.

The Perception Of A Professional Image

Being a sole trader might not give as professional an image as it does when you have a company. This can put some people off from choosing you to do work for them. Some larger firms are known to only deal with limited companies and won’t even consider dealing with a sole trader.

Summary Of Whether Being A Sole Trader Is For You

The Pro's

If you feel you are stuck in a rut and you feel that you are ready to change your life for the better and the thought of working for yourself, where no one else can dictate to you what jobs you are to do and how you are to do them, sounds like a dream then becoming a sole trader could very well be the leap you need to take.

You will be in control of your work/life balance and you can create a work life that fits in with your social life.

The Cons

You will need help, advice and support. There will be a massive impact on your life and at first things may be very difficult.

At times you may feel out of your depth and don't know where to turn for advice. Finances may well suffer, and possibly it could all go horribly wrong if you have not thought the whole matter through or lack the commitment to see it through.

A Balanced View

From the points made above you can see that trading as a sole trader doesn’t have to mean lots of extra work has to be done as there is not much extra work for you to do apart from keeping all of your paperwork.

Working for yourself with little extra work required apart from your trade definitely sounds like a dream come true to many.

Need Sole Trader Advice?

Drop us a line today for a free meeting!

Sole Trader Questions

How & When Is Tax Paid?

The tax year ends on 31 March (Also sometimes known as 5th April). The tax due for that year must be paid by 31 Jan along with any payment on account for the following year.

How Much Tax Will I Pay Being Self Employed?

Ideally as little as possible!

As net profit goes up so does tax, however, there are things we can do to minimise this.

Some of these solutions may be employing a family member, investing in capital (vans equipment etc) or perhaps paying into a pension scheme. Further advice can be given on enquiry.

Do I Have To Pay National Insurance?

As a self-employed person you will pay class 2 national insurance (that's the self-employed national insurance) along with class 4 national insurance (profits related).

Class 4 national insurance can be avoided if you switch over to trading as a one person Ltd Co.

How Much Tax Will I Pay Being Self Employed?

Ideally as little as possible! As net profit goes up so does tax, however, there are things we can do to minimise this.

Some of these solutions may be employing a family member, investing in capital (vans equipment etc) or perhaps paying into a pension scheme. Further advice can be given on enquiry.

Do I Have To Pay National Insurance?

As a self-employed person you will pay class 2 national insurance (that's the self-employed national insurance) along with class 4 national insurance (profits related).

Class 4 national insurance can be avoided if you switch over to trading as a one person Ltd Co.

When Do I Have To Charge VAT?

Currently, in 2017 the threshold is £83,000 pro rata based on a 12 week rolling average. In other words you don't wait until you reach £83,000, you instead measure it pro-rata .

How Do I Record Business Expenses?

All business related expenses must be supported by a valid invoice. If you have spent money on a business item but lost the receipt, write it down on a sheet of paper, we will put it through.

Normally HMRC are okay with this if it is a reasonable amount.

Can I Claim The Use Of My Home As A Business Expense?

Yes, this is possible. HRMC state it is possible to claim back expenses for a room in your home, for the hours you use it purely for business purposes.

This means you can claim for electricity, heating and water, council tax and mortgage interest for the use of your home as an office space. You will need to take into account how many hours a week you are using the space and then calculate the cost of the room per hour. These amounts would normally be charged in your accounts to 'use of home as office'.

To be honest the ‘use of home’ allowance is a little complicated, and changes yet again if you become a Limited company and continue to work from home, so it is probably best to speak with an accountant to get the most accurate and up to date information.

Can I Claim For Travel Expenses?

You can claim for your car, rail travel and any other business related travel costs you incur. Although you should make sure that you keep hold of any receipts, to prove that the expense was incurred.

If your car costs you £10,000 to run in a year, and you use it 50% of the time for business, you can claim back £5,000.

How Do I Register With HMRC As A Sole Trader?

It is as simple as calling HMRC's "Newly Self Employed" helpline with your national insurance number.

 

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