Starting a business as a sole trader can be a great way to become your own boss and work on something you’re passionate about. A sole trader runs their business as an individual and is responsible for all aspects of the business, including finances, marketing, and operations. If you’re considering registering as a sole trader in the UK, this guide will help you understand what it entails, the benefits, and how to get started.
A sole trader is a self-employed individual who runs a business as an individual rather than through a limited company. This means the person is solely responsible for the business, including its finances, assets, and liabilities. As a sole trader, you have full control over your business, including the types of products or services you offer, how you market your business, and how you manage your finances.
Some of the significant benefits of registering as a sole trader in the UK include the following:
One of the main benefits of being a sole trader is the ease of set-up. You can simply register with HM Revenue & Customs (HMRC) as self-employed, which involves completing a simple online form. You can start trading immediately after reporting and don't need to go through the formal process of setting up a limited company, which involves more paperwork and legal requirements.
As a sole trader, you have complete control over your business. You are the sole owner; therefore, you can make all the decisions without consulting with other stakeholders. This means that you can react quickly to changes in the market or make changes to your business strategy without having to seek the approval of others.
Being a sole trader also gives you flexibility in your working hours and location. You can work from anywhere, such as your home office or a co-working space, and you can choose the hours that suit you best. This flexibility means that you can work around other commitments, such as caring for children or family members.
As a sole trader, you may be eligible for tax benefits. For example, you can claim tax deductions for business expenses such as equipment, travel, and marketing. This can reduce your taxable income and lower your tax bill. Additionally, you can claim the Annual Investment Allowance, which allows you to deduct the full cost of machinery and computers from your taxable profits.
It's important to note that while being a sole trader offers certain tax benefits, you are also personally liable for any debts your business incurs. Therefore, it's crucial to keep accurate records and manage your finances carefully to avoid financial problems in the future.
To register as a sole trader in the UK, you need to follow these steps:
You can trade under your own name or choose a different name for your business. If you choose a different name, you’ll need to ensure that it’s not already taken and that it’s not too similar to another business name. You should also check if the domain name is available for your business.
You must register for self-assessment with HM Revenue & Customs (HMRC). This is so you can pay tax on your business profits and complete an annual tax return. You can register online, by phone, or by post.
You’ll also need to register for National Insurance with HMRC. This is so you can pay Class 2 National Insurance contributions. You can register for National Insurance at the same time as registering for self-assessment.
It’s a good idea to set up a separate bank account for your business transactions is a good idea. This will make it easier to keep track of your finances and ensure you’re meeting your tax obligations.
As a sole trader, you must keep accurate records of all your business income and expenses. This will make it easier to complete your tax return at the end of the year. You should keep records of invoices, receipts, bank statements, and other relevant documents.
If your business has a turnover of £85,000 or more, you must register for Value Added Tax (VAT). If your turnover is below this threshold, you don’t need to register for VAT, but you may choose to do so voluntarily.
Getting professional advice from an accountant or business advisor when setting up as a sole trader is a good idea. They can help you with things like tax planning and bookkeeping to give you guidance and support as your business grows. An accountant can help you keep on top of your finances, ensure that you’re claiming all the tax deductions you’re entitled to, and help you plan for your future.
You can find an accountant through personal recommendations, online directories, or professional organisations such as the Institute of Chartered Accountants in England and Wales (ICAEW) or the Association of Chartered Certified Accountants (ACCA).
Another important factor to consider when choosing between a sole trader and a company director model is taxation. As a sole trader, you are taxed on your business's profits as part of your personal income. This means that if your business makes a profit of £50,000 and your income is £30,000, you will pay income tax on a total income of £80,000.
As a company director, you can pay yourself a salary or receive income as dividends. If you pay yourself a salary, you will be taxed on your income as an employee, and the company will also have to pay the employer's National Insurance contributions. If you receive payment in the form of dividends, you will pay a lower tax rate than if you were paid a salary. However, it's important to note that you can only pay yourself dividends if the company has made a profit, and you cannot pay yourself dividends if the company is making a loss.
Registering as a sole trader in the UK is a simple process that provides numerous benefits. As a sole trader, you have full control over your business, can work flexibly, and may be eligible for certain tax benefits. Following the steps outlined in this guide, you can register your business, set up a separate bank account, keep accurate records, and seek professional advice when needed.
While it may be tempting to try and go it alone, seeking professional advice can help you avoid costly mistakes and ensure your business is set up for long-term success.
Get the best advice on tax savings, accounting services, payroll, self assessment, VAT and more, whether you want to call us directly, request a call back or chat online with our experts, rest assured that we will always give you the best advice.If you have any questions, or would like to speak to us in person, please do get in touch. We're here to help.
DNS House, 382 Kenton Road,
Harrow, Middlesex, HA3 8DP
“I recently started my own company and in need of a good accountant. With my friends reference, I started dns accountancy services and I am a quite satisfied with their service. My account manager Sneha Gurudutta was always responsive and guided me a lot especially during my company early days. Keep u the good work.”
“I have been dns for the last 3 months and I am very happy with the service. My account manager Sneha Gurudutta guided me and helped me with all the major/minor steps with the account setup. The weekend support they provide is really helpful. I would definitely recommend dns to all my friends.”
“Unfortunately my son passed away without leaving any contact name of his accountant. I was able to make contact with the firm through HMRC. The staff were very prompt, caring and supportive in settling his income tax account. I was extremely impressed with the efficient caring and supportive service received from all of dns staff.”
“Been with dns Accountants for more than a year I would highly recommened their services. My account manager Sneha has been very helpful and helped with accounts and queries swiftly always! Having a good accountant means you can fully focus on your business, not worry about accounts and tax matters. Thank you dns :-)”
“I have been extremely satisfied with the service I have been receiving close to past 1 year. Very professional, transparent and helpful. Special mention of my Account Manager Minakshi Arora who made my transition very smooth and always ready to go that extra mile to support and make customer happy. Definitely recommended.”
“I've recently set up a Ltd. Company and signed up with dns for my accounting services. I've found it very good value for money and hugely helpful in terms of advice and guidance. I have a named Account Manager, Sneha Gurudutta, who keeps in contact with me and offers advice on line and on the phone... I'm really pleased with the service.”