If you’re starting your own business, it’s worth considering setting yourself up as a sole trader. Turner Little explains how to register as a sole trader.
Sole trader vs. limited company
The advantages of setting yourself up as a sole trader is that it’s quick, easy and low-cost, while preparing sole trader accounts can be fairly straight forward. If you establish yourself as a sole trader now, there’s nothing to stop you from employing staff later and forming a limited company in the future as your enterprise expands.
But you’ll incur some element of financial risk when you establish a sole trader business. This might not be a problem if you’re planning to set up a low-cost company. However, if you think you might run up significant business debts while operating your firm, it may be advisable to form a limited company at the outset. This can give you the personal financial protection you might need later on. Turner Little provides the limited company formation services you require to build a successful enterprise.
Registering as a sole trader
Before you decide how you’re going to start your business, weigh up the advantages and disadvantages of sole tradership and limited company formation. If you choose the former option, the first thing you’ll need to do is register yourself as a sole trader with HM Revenue and Customs (HMRC). You can do this by registering to use HMRC’s online service or calling 0300 200 3504, HMRC’s ‘Newly Self-Employed Helpline.’
You’ll need several pieces of information to complete this process. This includes your name, date of birth, National Insurance Number, address, telephone number and the start date, name and type of company you want to set up. Instead, you can register by downloading HMRC’s ‘Becoming self-employed and registering for National Insurance contributions and/or tax’ form, which you should then send to the National Insurance Contributions Office.
It’s important to note that you’ll be required to register as a sole trader with HMRC even if you’re planning to run your business part-time. Many people decide to become a part-time sole trader so they can keep their day job so they don’t lose their existing salary, while they see whether their firm will become successful. Under UK law, you need to register with HMRC even if you’re only self-employed part-time and keep your day job.
Financial obligations
Also, if you become a sole trader you’ll have to pay income tax on any profits you earn. There are a number of financial obligations attached to sole tradership. These can include:
- Sending tax returns: As a sole trader you’ll need to let the government know how much revenue your business is earning, and any expenses you’ve incurred in running your operation. Therefore, you must send a self-assessment tax return to HMRC every year, so they can determine how much tax your venture owes the government.
- Keeping detailed records: We’d strongly advise you to maintain stringent financial records for your enterprise, as well as proof (e.g. utility bills, invoices, receipts) of the expenses you incur in running your business. These will allow you to fill in accurate tax returns each year.
- Collecting NICS: Sole traders are required to pay Class 2 National Insurance contributions (NICs) of £2.80 per week. Remember that Whitehall now collects Class 2 NICs at the same time you submit your income tax, calculating them via your self-assessment tax return.
- Collecting Class 4 NICS: You’ll also be required to pay Class 4 NICs (9% on profits up to £42,385; 11% on annual profits above this figure as of the 2015/2016 tax year) to the government if your yearly profits exceed £8,060. Your business’ Class 4 NICs bill will be calculated from your self-assessment tax return, after which you’ll be required to submit them to HMRC along with your income tax payments.
- Paying VAT: If you have reason to believe your venture will earn more than £82,000 (as of the 2015/2016 financial year) in annual income, you’ll need to register for Value Added Tax (VAT). This is a tax that you’re required to charge on the price of any products or services you sell to consumers, which must then be paid to HMRC.
As your sole trader business expands, you may start hiring employees. At this point, you’ll be legally obligated to also pay your staff’s income tax and NICS to HMRC, which you must do via the Pay As You Earn system. Therefore if you register as a sole trader and build a thriving enterprise, you’re going to need effective banking services to ensure you adhere to your financial obligations. Turner Little supplies the comprehensive UK banking services you’ll require to succeed as a sole trader.
Turner Little
Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agents, Registered Bank Intermediaries and Business Consultants, as well as Trust providers.
