Guest blog post by Ruby Andrews of NI card.
Who can be considered a sole trader?
A sole trader is a person who puts his or her effort in a business that belongs to him and benefits by enjoying all the process. Sole traders get involved with financial risks. They are accountable to all debts if the business fails.
The advantages of being a sole trader.
Low managerial costs (since one person is the sole owner) and easy start up (since less capital is required) are a couple of the advantages of becoming a sole trader. Also, since total control is in one person's hands, decision making can be quick and the sole trader (maybe you!) enjoys all the profit.
How to register as a sole trader.
Anyone wishing to become a sole trader needs to register for NI Card payment of revenue and custom duties. To register you will need the following:
1. Your name
2. Your address
3. NI card (National insurance number)
4. Nature of your business
5. Start date
6.Tax reference
1. Pick a business name you wish to register. The name should be short and easy to pronounce so it will be easy for customers to remember.
2. After picking your business name, submit it to the register of companies for searching. It is advisable you have at least three choices of names in case one gets rejected. After searching, you will receive a confirmation saying whether the name submitted is available.
3. If the name is available you will be required to fill out a series forms. These forms may include NI contribution and tax. You will then need to send the forms to an NI office.
What you need to know about self employment tax and NI.
As a self-employed person you pay income tax from the profit made by your business. You must fill out your self-assessment tax forms each year, and provide details on your expenses and income. Your income tax is then calculated from your tax returns. Payment of the tax depends on the tax class given by your annual profits. This means you must keep all your business records and proof of any expenditures which will be vital when you go to fill out your tax return forms.
As a sole trader you need also to register for Value Added Taxes (VAT) which is charged from your customers and paid to HMR. After completing registration, HMRC will know about your business. You can even register online where you provide information about yourself and your business.
HMRC will setup your tax records using the information you provided. Here are some of the records you will need to provide:
1. Self-assessment
2. ni card (National Insurance number)
3.Pay As You Earn PAYE
If you have employed workers, you will need to collect income tax and NICs (National Insurance Contribution) as stated on their NI card and pay this to HMRC (HM Revenue and Customs).
Tip: Use your online account to manage your self-assessment statements. It may seem look like a lot of work to set yourself up as sole trader but if you manage your records as you go, you will have enough time to prepare and submit your records on time.
Thanks for your useful article.
If your turnover is below the threshold (can't remember what it is! ) you won't need to register for VAT.
Although you'll need to keep this in mind for when your business grows, it's one hurdle you may not need to negotiate immediately.