How to Become a Sole Trader
Thinking of becoming a sole trader? Fantastic. Working this manner not only gives you more flexibility and allows you to take complete control of your career, but it’s also the simplest method to start offering your services as a self-employed individual.
We cover all you need to know about registering as a sole trader in our easy to follow tutorial. We’ve also added a few other items to consider as you begin your journey towards self-employment.
Choose your business name
Every company requires a name. This can be as basic as your own name, something catchier, more professional sounding, or even amusing if you think it would help your business – but it must never be disrespectful or derogatory, as the government is keen to stress.
Furthermore, the words ‘limited,’ ‘ltd,’ ‘limited liability partnership,’ ‘LLP,’ ‘public limited company,’ or ‘plc’ cannot be used in your name because they all imply that your company is incorporated.
You should also avoid replicating existing trade marks because you run the danger of legal action from the trade mark’s owner. Don’t worry, you can look up all UK trade marks on the government website, and you can even register your own if you want to.
Register as a sole trader for tax purposes
When you go self-employed, the only need is that you register as a sole trader for tax purposes. Simply put, this is how you inform HMRC that you will pay income tax via self-assessment, which you must file and pay every year.
While you don’t have to finish your sole trader registration until the 5th of October in your business’s second tax year, it’s worthwhile doing it early because you don’t want to forget and be fined.
How to register as a sole trader:
- Head to the government website and put in your information.
- Soon after, you’ll receive your Unique Taxpayer Reference (UTR) number in the post. Make a note of this – you’ll need this when submitting and then paying your self-assessment tax return.
- Once your UTR arrives, you’ll be sent another letter containing your account activation code.
- When your account has been activated, you can file and pay your self-assessment tax return any time before the 31st January deadline.
Taxes are something that sole traders need to be aware of and stay on top of. As a result, it’s critical that you have a strong grasp on the tax you owe, as well as the payment deadlines.
Do you have to register as a sole trader immediately?
It depends on how much money you made from self-employment in the preceding tax year, if any at all. If the sum exceeds £1,000, you must immediately register as a sole trader.
Other reasons to register early include being eligible for tax-free daycare or making voluntary class 2 National Insurance contributions to be considered eligible for certain benefits.
After completing your sole trader registration, you’re in a good position to consider what else you can do to provide a solid basis for your company.
Let’s look at some other things to think about when starting a business as a sole trader:
Do you need a separate bank account?
You are not legally obligated to register a business bank account when you start a sole trader business. This is due to the fact that sole traders are not separated from their businesses in the same way that limited companies are. Despite this, many sole traders choose to open a new personal account in order to make and receive payments.
This is done with the intention of keeping your personal and business finances distinct. This makes it easy to keep track of your income and expenses, and, as a result, figure out how much tax you owe.
Managing your accounts
The last thing any sole trader wants to do in the run-up to the self-assessment deadline is sift through receipts, add up expenses, and figure out how much tax they owe. That is why staying on top of your finances at all times – and from the beginning – will make your life much easier.
Don’t be alarmed if this sounds intimidating. You can always speak with us here at TJ Whiffin, we can explain everything to you in clear English – from permitted spending to VAT and tax deadlines – before handling these duties on your behalf.
Protection for your business
In business, even with the best intentions, things may go wrong. When working for a customer, for example, you might make a mistake that leads them to lose money. You could be the target of a cyber assault, resulting in lost revenue. Alternatively, you could become ill or injured, preventing you from working for a period of time.
It’s why, for peace of mind and financial protection, many sole traders prefer to insure their businesses from the start. There is plenty of protection available for sole traders, whether it’s professional indemnity insurance to cover mistakes, public liability insurance to cover accidents, cyber cover, or equipment insurance.
What else should you consider?
That you can always count on an expert like TJ Whiffin to help you – from sole trader registration to a range of reliable and customised accounting services that save you time, money, and help you stay compliant with the law.
Get in touch with us to see how we can help you.