Being a Sole Trader
Being a Sole Trader
Setting up as a Sole Trader is often considered the most popular way to get your new venture off the ground.
Here at Kennedys Accounting, we are very experienced working with sole traders and are here to talk you through your options and help you decide if this is the best route for you.
First of all – being a sole trader and being self employed are the same thing just said using different words. For the purposes of this page we will use the phrase ‘sole trader’
You want to be a Sole Trader? – where do you start?
Setting up as a sole trader is one of the easiest ways to start a business with regards to registration and administrative requirements.
Although it is easy there are a few areas you need to consider, for instance.
You can be fined if you don't register yourself as a Sole Trader within three months of starting to trade. Here at Kennedys Accounting we can assist with this.
There is not a legal distinction between the sole trader business and you (the sole trader). This effectively means that you would be personally responsible for any business debts and liabilities.
What else do you need to consider when setting up as a Sole Trader?
1. Keep Accurate Business Records
We will talk you through the records you will need to keep. You could also benefit from using cloud based accounting software - we would be happy to discuss this with you, and assist you with selecting the right software for you and your business.
2. Paying Your Tax & National Insurance
After registering as self-employed, you should automatically be sent a Self Assessment notice at the end of each tax year (6th April to 5th April) from HMRC.
As a Sole Trader, your business income is counted alongside any other personal income you have for tax purposes. We will complete and submit your paperwork, calculate your tax bill/ refund and advise you what to pay and when.
3. VAT Registration
You'll have to register for VAT if your annual turnover reaches the current threshold, or if you expect it to do so in the coming twelve months. Before you are registered we will discuss your business with you to ensure that you are placed on the best VAT scheme for you, and also whether being a sole trader is still the most appropriate way to trade.
What are your Main Responsibilities as a Sole Trader?
You're running your business as an individual and your customers are paying you directly. Your profit is your personal income.
However, you've still got personal taxes and National Insurance to pay. You may not have to run a payroll to pay yourself, but the law makes no distinction between yourself and your company.
The sole trader structure is ideal for many small business owners, particularly freelancers who have only a few clients and/or an annual income below £50,000. However, there may come a time when it is financially or professionally beneficial to consider limited company formation. When it looks like you are getting to this point, then please get in touch with us.
Sole Trader Bank Account
You don't need a separate bank account from your personal one, but we would recommend it. You don’t have to use the bank where you have your personal accounts, so it's worth shopping around.
Business Insurance for Sole Traders
Some insurance is mandatory, like Employers’ Liability Insurance if you employ people. Others may be required for specific industries, or if your customers require it. Some simply offer peace of mind. It's important to know the difference and to ensure that you have the right policies in place.
Filing and payment deadlines for Self Assessment
The tax year for Self Assessment runs from 6th April – 5th April the following year and must be filed and any tax due paid by 31st January (in the year following the tax period). Here at Kennedys Accounting we will work with you to complete your Self Assessment Tax return and we encourage all clients to send us their information as soon as possible after the tax year ends, this benefits the sole trader in a number of ways;
- Completing your tax return as soon as you are able means that all information is still fresh in your mind should your accountant have any questions.
- By knowing how much your tax bill is you can start to budget to ensure you have sufficient funds when payment is due
- You can file your self assessment tax return anytime before 31 January, however you don’t have to pay your tax until the due date.
You must complete and file a tax return even if you do not have any tax to pay.
Here at Kennedys Accounting we have a package designed for Sole Trader’s -