News
Considering Self Employment
21 - 09 - 2021
For many entrepreneurs setting up in business, using sole trader status seems the simplest and quickest way to get going.
Advantages Of Being A Sole Trader
For many entrepreneurs setting up in business, using sole trader status seems the simplest and quickest way to get going.
• The setup process is relatively straightforward.
• The owner can keep control of all decision making and gets to keep all the profits themselves. In other words, there are no other
owners to answer to. This means no constraints on what the business can or can not do (subject to any trading regulations, laws and licences required in any
given market sector).
• Sole trader businesses can be created with exceedingly small amounts of capital investment during the start-up phase.
• Your money and accounting affairs remain confidential, (as there is not the same legal public disclosure requirement on sole trader
companies as there is on limited liability companies, to publish accounts).
Disadvantages Of Being A Sole Trader Becoming a sole trader company.
• Firstly, they have unlimited liability and personal risk. If the business cannot afford to pay its creditors, it is possible the owner may lose their
personal security (such as their home, car or other assets), to reimburse the business debt. This can become a problem when sole traders
suffer from cash flow problems, caused by late payments from trade customers.
• Because sole traders usually work full time, taking a break or finding cover when they are sick means they can lose business income.
• Getting a small business loan can be extremely difficult. British banks have already clamped down on the levels of approved business loans
and asset finance lending. Banks demand personal security from sole traders, while offering harsher business lending criteria. This is due to
the fact in a recession; more sole traders tend to go out of business, when compared to limited liability companies.
• Obtaining new business sales from larger customers can sometimes be difficult, because of the lack of credibility associated with sole trader status.
• Lastly, securing trade credit or volume discounts for raw materials can be difficult to obtain, due to generally low economies of scale.
Sole Trader Tax
• As a sole trader, any income generated will be counted alongside your personal income, (making tax affairs relatively straightforward).
• Your annual self-assessment tax form must be backed up by accurate records including invoices for any work undertaken, and receipts for
allowable overheads incurred.
• You will be liable for Class 2 and Class 4 National Insurance contributions.
• You may be eligible for a Small Earnings Exemption if your income is relatively small.
• You must also register for VAT once your sales turnover reaches a certain level. Accounting for VAT can seem daunting at first. So it is prudent
to seek professional accounting advice regarding record-keeping and VAT calculations.
• Although your tax affairs are linked with any other personal income, it is still wise to open a separate sole trader bank account.
This makes your accounting simpler and transparent for revenue recognition.
• There may also be capital allowances available against income, depending upon the type of machinery and assets required to maintain the business.
As a sole trader you do not have to get your accounts reviewed, if you do not want to. However you may consider doing so, if the cost is considered
reasonablet, as it can help in dealings with HMRC. It may also help you if you need confirmation of income from your business -
for example, to get a mortgage to buy a house or make contributions to some personal pensions.
Foremans can support you with:
Help manage business cash flow and your own income
Do all paperwork correctly first time
Make sure all deadlines are met with HMRC
Provide Tax advice on business income & expenses
Liaise with third parties
Provide you with monthly report that allows you to reserve sufficient funds for future tax payments, business development and ongoing commitments.
Full Accountancy services to keep you on track, including:-
• Book Keeping
• Tax Returns
• Annual Account preparations
• VAT returns (if applicable)
We support you, and YOU CONCENTRATE ON RUNNING YOUR BUSINESS
To discuss our packages and how we can support you
contactus@foremansllp.com

