A sole trader is simply being self-employed and definitely a quick way to set up your own business. As a sole trader you can also have employees.
As a sole trader, there is a degree of personal risk. Sole traders will be responsible for any debt should their business fail.
If you a starting a low-cost business which is unlikely to incur big debts then this likely something you wont need to worry about. For start-ups likely to build up large debts covering premises, supplies and equipment then forming a limited company may be the better option.
Why choose a sole trader
Registering as a sole trader is pretty much hassle free and involves no cost. Managing your accounts as a sole trader is also relatively straightforward. Sole traders can also grow their business as with any other structure and employ people with the option to become a limited company later in the future if required.
There is a lot more administration involved when operating a limited company and generally employing an accountant to manage the company’s finances would be advisable. Also, when running a limited company, you must also register your new company with Companies House.
Anyone can be a sole trader however but for some businesses you may need to seek a permit or licence for your local authority depending on the type of business you intend to operate for example a bar.
Registering as a sole trader
You must register your sole trader business with HM Revenue & Customs (HMRC) as soon as possible. Failure to do this can result in fines being imposed. This applies whether full time or part time. There are many businesses that are part-time which is a good way to start until the business grows and generates enough revenue to become full time. Many full-time workers may set up as a sole trader to make a bit of extra income on the side. This still requires registering with HMRC.
Visit the gov website to set up as a sole trader
Information you will need includes
- Telephone number
- National insurance number
- Business start date
- Name and Type of Business
- Sole trader or partner
What you need to Pay?
Class 2 National Insurance Contributions – £3.05 per week for 2020 – 2021.
Class 2 National Insurance Contributions – £3.00 per week for 2019 – 2020.
If your annual profits exceed £9,500 for 2020/2 or (£8,632 for 2019/20) you will need to pay Class 4 NICs at 9% on profits up between £9,500 and £50,000 for 2020/2 and (£8,632 and £46,350 2019/20); 2% on annual profits above this figure.
Please be advised that you must also keep detailed financial records for all your expenses. This will help save time when completing you tax return but also ensure that you pay the right amount of tax.
Employing people as a sole trader means you will need to collect income tax and NICS and pay these to HMRC. You will be required to operate
If, you employ people as a sole trader, you need to collect income tax and NICs from them and pay these to HMRC. You’ll also need to operate a (Pay As You Earn) payroll scheme and enrol all eligible employees into the national pension scheme and contribute towards it.
For more information on registering as a sole trader, visit the https://www.gov.uk/.