An introduction to Sole Traders

9 years ago

An introduction to Sole Traders

What is a sole trader?

A sole trader is an independent owner of a business. She/he has all the rights and responsibilities of the business and any profit or loss made (after all tax has been paid).

Just because a sole trader is self-employed it doesn’t mean they cannot hire staff. If this is decided then there are things one must consider before hiring.

Things you must do:

All sole traders must register with HMRC, there are guidelines and specific rules that sole traders must follow when managing and naming their business.

All records of your business’s sales and expenses must be kept and accounted for.

A Self-Assessment tax return must be done annually.

Income tax and Class 2 & 4 National Insurance must be paid on all profit made.

As mentioned previously the sole trader is responsible for any debts or losses the company may face.

The sole trader is responsible for all the bills that are relevant to the business.

If the company’s turnover is more than £82,000 (the VAT threshold) in a 12 month period then VAT must be registered for.

You must register within 30 days of your business turnover exceeding the threshold. If you register late, you must pay what you owe from when you should have registered.

Contractors and sub-contractors must register with the Construction Industry Scheme. This only requires a phone call to the CIS helpline. (Telephone: 0300 200 3210 Text phone: 0300 200 3219 Outside UK: +44 161 930 8706).

Naming the business

Naming the business can be frustrating, however the name can be the sole trader’s name. It can also be a trade from a business name.

Sole traders do not have to register with Companies House, but there are still rules that will need to be followed in order to name the business.

What your name cannot contain

The name chosen must not contain sensitive words or expressions, (typically taboo language) unless it has been approved.

It cannot imply a connection to the Government or local authorities.

It cannot offend anyone personally.

*The name chosen cannot be related to a name that already exists. (If the name is too similar to one already established then the third party company may complain).

*Companies House can contact you if they think the name is too similar.

How to register

Sole Traders that have not sent tax returns before, should tell HMRC by registering as a new business, at the same time the Self-Assessment tax returns and Class 2 National Insurance will also be registered for.

For Sole Traders that have already sent their tax returns, you will have to register as self-employed and for Class 2 National Insurance, you will have the choice of keeping your current Self-Assessment account.

*You will need your 10 digit UTR - Unique Taxpayer Reference, this will help HMRC link your accounts.

For previous sole traders that want to restart, you will need to register your Unique Taxpayer Reference, the reasons are the same as new sole traders in Self-Assessment.

How long does it take?

Up to 10 working days for the registration process to be completed, once done you will be notified, you will then be able to log into your online personal account, this is also known as a Government Gateway account.

Registering

*Once a business has been created it should be registered as soon as possible, if there are complications when registering then the latest you should register it by is the 5th October in the businesses second tax year.

*If you have to register later, there won’t be a charge, as long as the Self -Assessment tax return and bill is paid on time.

Published by Kareema