If you have been working on your own for a while then you should know what a sole trader is…
But if you are new to running a business, this may help explain exactly what it is.
A sole trader is a person running a business independently and who DOES NOT work for another business. In the UK, sole traders are one of the most popular forms of small business structure and needs to be registered with HMRC.
The sole trader business set up is the simplest method of starting a business but it does come with risks as a sole trader is personally responsibly for all business finances (including any bookkeeping services) and there is no legal distinction between a business and the person who runs it. This means that you are personally responsible for any debts that the business incurs.
The reasons for being a sole trader
- It is the easiest way to start a business
- There is less paperwork required to set up a business as a sole trader
- It can allow someone to operate a business while working round family life
- As the business owner (and sole employee), you make all the decision
- Choose the hours you work
- All company profits are yours
- No need to register a company with Companies House
When is a sole trader not a sole trader
In the eyes of HMRC, a sole trader with only one client may actually be deemed instead to be an employee. But this is up to HMRC to decide. If you are not sure of what employment status you are, you can check with HRMC using the link below:
What taxes do I need to pay as a sole trader?
If you are a sole trader, you need to pay your own taxes. This is in the form of National Insurance and Income Tax.
There are currently two types of national insurance. NI2 and NI4. NI4 is based on a percentage of your taxable profit whereas NI2 is national insurance contributions.
Income tax is dependent on the taxable profit your business has made.
Do I need to be VAT registered?
Sole traders do not need to be VAT registered unless they go beyond the current VAT threshold of £85,000.
Do I need a separate bank account?
You don’t need to but it can make life a lot easier both for yourself and your bookkeeper (if you have one) to process your finances.
How can we help?
We are Momentum Bookkeeping and our goal is to make running your business easier. Whether it’s getting paid by your customers on time, completing your VAT returns or processing payroll; the demands on businesses can seem endless.
Let us handle your bookkeeping needs so that you can focus on running your business and gain some real momentum.
We have over 17 years’ experience of working with small and medium sized businesses across every industry sector.
We have extensive experience in all major software platforms, be it Xero, Sage, Quickbooks etc. We know that every business is different, which is why we will always take the time to get to know your business and to shape our service accordingly.