Starting a new business by ‘going it alone’ can be daunting. However, the good news is that starting out as a sole trader is by far the simplest and easiest way to get going.
You aren’t bound by red tape and paperwork that will have you tripping up before you’ve finished typing a business plan. You can, relatively quickly and easily, figure out if your business idea will work. You can also ‘learn on the job’.
Therefore, if you’re ready to take your first steps in to running your own business, starting as a sole trader is an excellent starting point. So what do you need to know?
The first hurdle that all new business owners face is simply a matter of understanding some lingo. Bandied about from the tax man to your web developer, you’re going to need to feel confident.
The term ‘sole-trader’ is a way of describing the set-up of your business. It’s a one-man-band (although you may at times subcontract, or indeed use employees). By very nature, if you’re a sole-trader then you are self-employed. You don’t have a boss. You also don’t have a payroll department. You’ll be paying tax through Self-Assessment.
The good news is that if you do well then all the profits after tax are solely yours. The bad news is that if things go wrong, the liability is personally yours too.
The single number one thing you need to do in order to get cracking as a sole trader is to register for Self Assessment tax returns each year. This is simple to do and can be done here. You can use your own name, or choose a name but at this stage it doesn’t need to be registered. Registering for Self Assessment needs to be done within 3 months of when you start trading.
Once that is done you’ll then need to keep records of your business income and expenses so that you can accurately complete the tax return each year. This is considerably easier if you use cloud-based accounting software such as Pandle. Further good news is that this is free until you grow sufficiently to need more complex features.
Your tax return will determine how much income tax you must pay, as well as the amount of Class 2 and Class 4 National Insurance contributions you’ll owe.
To begin with, it really is that simple.
As you grow, and your turnover becomes greater, then you may also need to register for VAT. You must register for VAT if your turnover is in excess of £85,000. You can choose to register on a voluntary basis before then if you wish (this may be beneficial if you are selling to other VAT-registered businesses and wish to reclaim VAT).
A word about names
Probably one of the most exciting elements of starting your new business and building a brand and identity will be centred on choosing a name. Your business name should be unique, most likely available as a domain name too, and not misleading or offensive. It can be sensible to register your business name as a trade mark to prevent others from using it. Bear in mind though that you must include your own name on all business stationery as a sole trader.
Consider if you need a licence or special permissions
For some sole trader businesses you may need a special permission or licence from your local authority. Businesses niches this applies to include childminders and restaurants, for example. So do check if this is required in your circumstances.
Once all of the above is in place that’s it! You’re ready to get going. Good luck!
Do you need help with Self Assessment and filing tax returns? Get in touch for a free quote today!