Becoming your own boss - guide for sole trader

• What is sole trader?

A sole trader is the exclusive owner of their business often alternatively called the "self-employed". Setting up as a sole trader is the fastest and easiest way to become your own boss and you’ll be able to take home 100% of the profit your business makes after tax.

Being a sole trader means flexibility – you can choose how many hours a week you want to work and you can dictate the direction of the business.

• Where do I start?

Registering to become a sole trader can be done online. If you haven't registered to become a sole trader before, after application HMRC will send you a letter with your 10-digit Unique Taxpayer Reference (UTR) and set up your account for the self assessment online service. The latest you can register with HMRC is by 5 October after the end of the tax year during which you became self-employed.

• How to pay taxes?

As a sole trader you’ll need to pay income tax and National Insurance Contributions (NICs) based on your business profits. Tax year runs from 6th April to 5th April and you must submit your self assessment and pay any tax and NICs by 31st January following the end of tax year.

• How to choose a name for my business?

You can trade under your own name or select a specific business name. Be careful not to include offensive words nor sensitive words such as Royal or British, which may mislead your customers. Take the time to do the research so you can check if any other sole traders are using the business name you want and don’t pick a name that’s the same or too similar to that of an existing company – you could end up with a legal dispute.

• Can I employ people?

Being your own boss doesn’t mean you have to work alone .But if you do employ people, you must collect income tax and NI contributions from them and pay these to HMRC. You'll need to operate a PAYE (Pay As You Earn) payroll scheme for this purpose.

• Do I need to register for VAT?

There is no need to register for VAT unless your turnover reaches the annual threshold of £85,000. You can choose to register for VAT voluntarily if your annual turnover is below threshold but you must remember that once registered for VAT, you must charge VAT to all your customers. You can then claim back the VAT you’ve paid on business purchases.

• Do I need business bank account?

As a sole trader you don’t need a separate business bank account, although it can make your business admin and bookkeeping easier if you do.

• What about insurance?

As soon as you take on staff you’re required by law to take out employers’ liability insurance to protect your employees if they fall ill or are injured in the course of their work.

Other forms of business insurance aren’t legal requirements but offer protection if your business or products harm others. For example, it’s a good idea to have public liability insurance if members of the public come to your premises or could be injured as a result of your business.

• Should I get an accountant?

You may be surprised to learn that there is no mandatory requirement for sole traders to use an Accountant.

If you’ve decided to invest in an Accountant make sure you look into selecting the right one for you and your business.

Get in touch. We are here to help.

Get in touch

Raven Accounts