A Guide To Becoming A Self-Employed Sole Trader

If you are starting up a new business you must consider your trading structure (how your organisation works on the most basic level). Do you have a partner who owns part of the business? Are your business finances separate from your personal ones? Do you work for anyone other than yourself? If the answer to these questions is no, you are a sole trader.

What Is a Sole Trader?

A sole trader is an individual who personally owns their business in its entirety (if you are unsure about this, ask yourself if anyone has the right to a portion of your profits). A sole trader is counted as being self-employed, so you must complete the process of registering yourself with the government.

What Are The Advantages and Disadvantages Of Being a Sole Trader?

To start with, you are your own boss. You do not have to answer to someone with more power than you when you make a decision and you do not have to explain your strategies to anyone who may work for you either. You can choose your hours and every penny of the profit is yours to allocate where you wish.

However, this does mean that the work-load can be considerable because you are likely to be managing your company alone. You are also liable for the business’ finances. This means that if you owe people money, they can claim your personal assets (such as your house), which is a stressful feature of the structure to deal with.

How to Register As a Self-Employed Sole Trader

Firstly, you must choose a name for your company. You should spend some time on this and check using online search engines whether somebody else is using the one you want (there is no register of names used by sole traders).

You then need to notify Her Majesty’s Revenue and Customs. If you do not do this within 3 months of being self-employed you will be fined £100. You can use their online forms or telephone their helpline at 0845 915 4515.

Being self-employed means that you will need to fill out a tax return every year and self-assess how much you owe. You will also need to pay your own National Insurance contributions (class 2). If your company earns over £68,000 in a year, you will also have to register to pay VAT. It is wise to ask an accountant how much you owe.

Finally, do not forget that some types of business need a license to operate (such as a child minder). Make sure you do your homework and have patience; with a little time, being a sole trader can be a very rewarding experience.