The option of setting up your own business and becoming an independent sole trader is a becoming an increasingly popular option mainly because of the easy start up procedures and the obvious appeals of being your own boss! Although relatively straight forward, it is important to follow the steps involved to avoid any unnecessary financial penalties.
Step 1 – Register as self employed
The first requirement is to register with Her Majesties Revenue and Customs (HMRC) as self employed. You should register the moment you become self employed in order to avoid any penalties. If after three months of trading you have still not registered you could be fined. The form required can be found on HMRC website.
Step 2 – Get to grips with VAT and tax issues
As a sole trader you will have to pay income tax on any profits you make. Every year you will be required to fill in a self assessment tax return form. It is advised to get an accountant or book keeper who can help you with these often complex issues, including explaining National Insurance payments. You will be advised to keep a detailed record of all your expenses receipts and transaction records which will make the self assessment a much easier job.
Step 3 – Do you need any special licenses?
The majority of sole traders will not require any licenses. However, businesses such as restaurants, taxi drivers and those who work with children may require a license from the local authority. The construction industry is also subject to special tax rules so it is best to visit the HMRC website for more information on this.
If you follow these steps you should be up and running as a sole trader in no time. Use our quick checklist below to see how close you to becoming a sole trader:
1. Have you registered as self employed with HMRC?
2. Have you set up a financial records system to monitor expenses and profits?
3. Have you sought professional advice?
Setting up as a sole trader is red tape and bureaucracy free in the most part. However, it is vital that you firstly register as self employed and understand the tax system and requirements. Seek professional help from a book keeper or accountant who can offer you expert help and advice.