Sole Trader is the simplest business format of all. You can trade under your own name or a business name and you can set up almost anytime, anywhere with little restriction or red tape. There are a few key things you need to do first though:
- Register with HM Revenue and Customs (HMRC) – For Tax and National Insurance
- Open a separate business bank account
- Set up a system for recording all sales, income and expenses
- Check to see if your type of business needs any kind of license, there are very few
- If you are working from home, do you need planning permission?
- Check with HMRC to see if you need to register for VAT
- Get yourself a set of guidance leaflets for business from your local Trading Standards office – pay particular attention to Business Names regulations and Consumer Protection
The main things to bear in mind as a Sole Trader are:
You and the business are legally the same. This means that you are personally liable for all the debts and other liabilities of the business to the full extent of your personal assets. If the business goes bust, you could lose everything.
Your business profits are taxed as your personal earnings along with any other earned or investment income you may have. If your profits are high, you will very rapidly become subject to higher rate tax.
In addition to tax you will have to pay two types of National Insurance contributions. Class 2 contributions are a fixed weekly amount, Class 4 contributions are a percentage of your profits between a lower and upper limit. You will be given the current rates and necessary information when you register with HMRC.
For the reasons above it would be wise to consult an accountant experienced in working with small bsinesses prior to starting out.
You can get more information from your local Business Link who will provide you with a business aviser free of charge. Find your local office at www.businesslink.gov.uk.