By Jonathan London on 27th August 2015

A quick guide to becoming a sole trader

Sole trader or Limited Company

Many people dream of ditching the corporate 9-5… and becoming self-employed. If the call to be your own boss is just too loud to ignore, there’s a chance you’ll want to go down the ‘sole trader’ route. Here’s our short guide to becoming a sole trader, with everything you need to know about getting up and running. It’s time to invest in stationery, snacks, and slippers (assuming you’re working from home, of course).

Setting Up

Setting yourself up as a sole trader is pretty simple. All you need to do is let HMRC know that your circumstances have changed, and register for self-assessment so you can pay Income Tax on your profits. Once that’s done, you get to change your LinkedIn, Facebook and Twitter profiles with your new working status; it’s totally official now.

To name or not to name?

Even if you’re just operating as a sole trader (and it’s just you, your dog and a cactus in your office) you can still trade under a business name. As a sole trader, you’re not required to register the name with Companies House but you still need to follow the rules – it can’t be the same as, or to similar to, an existing business, it can’t contain a sensitive word, it can’t be confused with official authorities, and it can’t be offensive.

If you do decide to create a business name, you must include both it and your name on any official paperwork (such as quotes and invoices).

Responsibilities

Not only will you now be responsible for paying your own taxes (more on that later), you’ll also have to keep accurate records of your sales, expenses and bills.

It’s also worth bearing in mind that, unfortunately, you’re also personally responsible if your business makes any losses.

Taxes

You’ll need to fill out a self-assessment tax return every year (or you can ask an accountant to take care of it for you), so that HMRC can calculate how much Income Tax you owe them. You’ll also have to pay National Insurance; HMRC will send you a bill every April.

HMRC could fine you for late payments, so make sure you keep on top of them.

VAT

Unless you expect to earn more than £82,000 per annum, VAT isn’t something you need to worry about.

If you do think you’ll need to pay VAT, you need to register with HMRC. They’ll then send you your VAT number, and inform you about when you need to send in your VAT Return and payment.

If your business becomes eligible to pay VAT after it’s been up and running for a few months/years/decades, you’ll need to tell HMRC within 30 days. Until you get your VAT number, you won’t be able to pass the cost of VAT on to your clients – but you will still have to pay it to HMRC. Therefore, it’s best to inform them as quickly as possible so you can include it on your invoices.

Marketing

Once your business is up and running, you’ll want to invest in some marketing to drive new business your way. Online marketing is a great (and cheap!) method of attracting new clients, and even if you have limited technical know-how it’s easy to DIY a website and social media. We’ve even already looked at the various options available for you.

If marketing really isn’t your thing, you can always get a marketing consultant on board to help point you in the right direction. Or you can outsource your marketing entirely to an agency or some specialist freelancers.

Networking

Going into business solo can be daunting. Whilst you might not have the money to hire staff or pay specialists, that doesn’t mean you have to miss out on their expertise. Networking events aren’t just about making new contacts in your area; they often host presentations from industry leaders. They’re a good opportunity to meet some fellow sole traders, learn from the best and drink some (hopefully free) wine.

Enjoy!

Jonathan London Written by Jonathan London

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