Many new business owners start trading as a sole trader, as it is one of the simplest ways of forming a business. As a sole trader you may be the only person within the business, however you may hire staff to work for you. A really key point to consider is that you will be personally liable for any debt relating to the business.
Registering as a sole trader is free and easy to do. Here are the first steps you need to take:
Register: You will need to register with HM Revenue and Customs (HMRC) which is free and can be done online or via the telephone.
Choosing a business name: It is important to choose an original and unique business name to catch the eye of potential customers. However, it is important to ensure the business name is not being used by another business. This is not always easy to establish but it’s advisable to do some basic checks on the name that you want to use, this should include:
- Checking Companies House;
- Searching the UK Trademark Register; and
- Doing a Google search.
Unique Tax Reference: Once you have registered with HMRC you will receive a Unique Tax reference number which is a 10 digit code unique to the business. This should be kept in a safe place, as you will need it when completing your annual Self-Assessment.
National Insurance Contributions: As a sole trader you may be required to pay National Insurance Contributions (NIC), the amount payable will depend on your income and employment status, as there are different types of contributions such as class 2 and class 4. Paying NIC will contribute towards certain benefits such as State Pension and Maternity Allowance.
Complete a Self-Assessment: You are required to complete a Self-Assessment on an annual basis. This is a breakdown of the businesses income and expenditure for the tax year which is runs from 6 April 2018 to 5 April 2019.
Book keeping: Keeping records of the businesses income and expenditure is vital. It can help with identify how profitable your business is and will allow you to complete your annual Self-assessment.
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If you’re a sole trader, you run your own business as an individual and are self-employed.