To set up as a sole trader and run a business has become one of the most common ways to start a business in the UK in the past couple of years. This is one of a legal form where the ownership and control rest with a single individual and the business, therefore, has no separate legal personality. Because of this, the person running the business is considered to be self-employed. This makes it riskier for the owner as he now has an unlimited personal liability of the business, for its contractual obligation, debts, and any other claims.
Registration as Sole Trader
The regulation requirements for a sole trader are minimal and there is no requirement for the business to be formally constituted. Further, you are not required to register or file accounts and returns as per Companies Act 2006 with Companies House.
Since sole trades are viewed as self-employed by HMRC they are allowed to keep their business’s profits after the required amount of tax has been paid on them. For this, they must register themselves in the ‘Self-Assessment’ category for HMRC and make an annual self-assessment tax return. The profits that are earned are subject to income tax and national insurance contributions.
Legal Requirements
A certain set of legal standards must be followed in order to qualify oneself as sole traders which are mentioned as follows.
- You/ your business under the name of self-employment earned more than £1,000 during the tax year spanning from 6th April to 5th April of the following year.
- Proof of self-employment is to be shown in order to claim for Tax-Free Childcare
- To qualify for benefits you are required to make voluntary class 2 National Insurance payments
- If the turnover of your business is over £90,000 you must register yourself with VAT
- Registration of you and your business name is not required but should be mentioned on the official paperwork that includes your invoices and letters
- The name of the trader must not include any form of abbreviation that confuses it with a limited company, must not be offensive, or as an existing trademark
Work and Responsibilities
As a sole trader and registered under HMRC you need to carry out the following operations on a regular basis.
- Keep a detailed and updated record of the sales and expenses of your business
- By the end of each year send a tax return as per the requirement of HMRC under the category of Self-Assessment
- Pay income tax on the profits that have been earned and on Class 2 and Class 4 National Insurance