All About Becoming a Sole Trader

By David Harrison
Content writer
Published: 3 October 2018 1 minute read

Table of Contents

If you have a great idea that you believe could be monetised, one way of getting the ball rolling is by registering as a Sole Trader. For many entrepreneurs with aspirations of becoming their own boss, becoming a sole trader is often perceived as a less complicated way of starting your own business. One reason for this may be because the paperwork, accounting and bookkeeping responsibilities are considered more manageable. Yet, nevertheless, registering as a sole trader is a decision that needs to be undertaken with realistic expectations and all the relevant information to hand. So if you’re wondering whether this is the most appropriate path towards achieving your vision, here’s what you need to know before registering as a sole trader company.

What is a sole trader company?

Simply put, registering as a sole trader means that you’re setting up and managing your own business. You and your business are the same entity, which makes you solely responsible for your own successes and liabilities. It also enables you to retain 100% of the profits your business generates, after corporation tax and any other expenses have been paid. But by becoming a sole trader, you’re also required to maintain up-to-date bookkeeping records (e.g. revenue and expenses), stay on top of corporation tax and pay staff wages (should you choose to take on employees at some point).

Are you a sole trader looking to support your business’ development? Need help sourcing a suitable finance solution? Apply for Alternative Business Finance or learn more about how your business could benefit.

How do I register a sole trader company with HMRC?

If you do believe that becoming a sole trader company is the way forward, you can register your business with HMRC. You are likely to need to provide details such as:

  • Your name
  • Date of birth
  • Address
  • Phone number
  • National Insurance number
  • Business name (optional)
  • Starting date of the business
  • Whether there are any partners involved.

In addition, although submitting the name of your business is optional, you’ll want to create one that is unique to your business. It should also express what you’re about (sector, goods and services) and be easy for your customers to remember. If you’ve got a name and want to prevent other businesses from using it, you may also want to register it as a trademark.

Will I need to pay sole trader corporation tax?

If you are intent on registering as a sole trader you will be required by law to pay income tax on whatever profits your business generates. So, as well as hiring an accountant experienced in your sector, you’ll also need to complete a self-assessment tax return form each year. This will require you to outline your business’ income and what expenses you’ve paid and should be done within the first 3 months of registering as a sole trader. Failure to do so could lead to a fine of £100.

In addition, if you’re expecting to generate an annual turnover of at least £85,000, you’ll need to request a VAT number and will be obliged to charge customers VAT, fill in VAT returns and make VAT payments to HMRC. For further information on where you stand regarding tax, consult the advice of a qualified business accountant before registering.

Can I take on employees?

Although you may have the knowledge and expertise to run your own business, there are only so many hours in each day. Yet, as a sole trader, the decision to take on employees is entirely up to you but, with their aid, you can delegate responsibilities and raise productivity. It may also enable you to offer goods and services to more customers, even those outside of your immediate location.

However, if you do allow employees to join your business, you’ll be responsible for providing employment contracts and collecting both income tax and National Insurance contributions (NICs). Plus, you may also need insurance against any claims made by employees and to provide a workplace pension too.

Will I need any licences and special permissions?

Although you may be operating as a sole trader, you might need to apply for licenses and special permissions in order to trade, depending on your chosen sector. This especially true if you intend to provide goods and services in sectors such as catering, transport (e.g. taxis) and childcare. When applying, local authorities or any other relevant bodies may take into account your qualifications, experience, trading address conditions and whether you have a criminal record. You may also be subjected to unannounced or short-notice inspections of your premises in order to assess whether you’re adhering to industry regulations.

What funding opportunities are available to sole trader companies?

Just like any other business operating in the UK, there is a wide range of funding opportunities and business finance solutions available to sole trader companies. But if you’re running an early stage business, raising capital through traditional financial institutions will prove challenging, especially with a limited trading history and an unproven business model. As such, you may want to consider grants, crowdfunding or peer-to-peer (P2P) lending opportunities instead. However, as your business continues to develop, the Alternative Finance Industry could offer you access to a new generation of business finance products and lenders. Depending on your goals and individual financial circumstances, you could qualify for anything from Secured Business Loans, Hire Purchase, Invoice Finance, Overdraft Replacement and Merchant Cash Advance (MCA). All you need to do is source a suitable finance agreement from a lender you can trust.

Need help raising capital for your sole trader company?

As a sole trader, you’re immediately assuming all the responsibilities that come with being your own boss, which can feel very intimidating at first. But in order to achieve your goals and ensure that your company has the means to ensure a sustainable future, one responsibility you can’t overlook is gaining access to enough capital. And, although capital can difficult to acquire, there are plenty of ways in which it can be raised, providing you know where to look. As the Alternative Finance Industry continues to expand, more and more business owners are gaining access to the funds they need to succeed. The only obstacle standing in your way is knowing how to source a suitable finance solution for your business from a lender you can trust. Fortunately, we’ve already done the hard work for you when it comes to finding the most appropriate finance for your individual needs.

At Rangewell, we’re an Access to Finance specialist, having mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use for businesses and we’ll also guide you through the application process - we’re here for you. So if you’re a sole trader and are looking to raise capital for your business, apply for Alternative Business Finance today or find out more with Rangewell.

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