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Thinking Of Becoming A Sole Trader?

04 - 10 - 2024

Thinking of becoming a Sole Trader? Becoming self employed could be easier than you think. 

Self Employed / Sole Trader

 

Being a sole trader is perhaps the simplest way to run a business, it does not require registration fees, you simply register with HMRC as Self-Employed. 

 

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 cannot 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). 

 

·         Planning breaks from work for family and holidays can be more easily scheduled and financed.

 

Disadvantages of Being  A  Sole Trader.

 

Becoming a sole trader company, does have its drawbacks though:

 

·         Firstly, sole traders have unlimited liability and could involve immense 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 any 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 Taxation

 

·         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 Class 4 National Insurance contributions and you may want to make voluntary Class 2 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. (£90,000pa). Accounting for VAT can seem daunting at first. 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.

 

Helpful Services

 

An accountant can assist you and become a valuable asset, providing you with:

 

·         Weekly/monthly invoicing and payroll services

·         Weekly/monthly bookkeeping

·         Review of expenses allowances

·         Completion of Annual Trading Statement

·         Annual Self-Assessment calculations

·         VAT compilation & filing (if required)

·         Additional business bank account (referral)

·         Fixed monthly fees to ease cashflow

 

For further information please do not hesitate to call us on:

 

01978 364 000

01244 625 500

Or email us on:

contactus@foremansllp.com



 

 

 

 

 

Foremans LLP Umberlla
Foremans LLP