Sole Trader Guidelines

Churchill Knight & Associates

What is a Sole Trader?

Being a sole trader is the simplest way to run a business: it does not involve paying any registration fees; keeping records and accounts is straightforward and you get to keep all the profits after tax and National Insurance. However, you are personally liable for any debts that your business incurs which means this is a risky option for businesses that need a lot of investment.

What does being a Sole Trader involve?

Set-up
  • You need to register as self-employed with HMRC within 3 months of trading.
  • If you don’t have a ‘Unique Tax Reference’ number (also known as a ‘UTR’), HMRC will provide you with one, once you have registered.
  • Pay your fixed rate of class 2 National Insurance Contributions.
Management and raising finance
  • You make all the decisions on how to manage your business.
  • You raise money for the business out of your own assets and/or with loans from banks or other lenders.
Records and accounts
  • You have to make an annual self assessment tax return to HM Revenue & Customs.
  • You must also keep records showing your business income and expenses.
Profits
  • Any profits go to you after tax and National Insurance.
  • You will pay income tax on all profits and pay National Insurance Contributions on those profits.
Tax and National Insurance
  • As you are self-employed, your profits are taxed as income.
  • You also need to pay fixed-rate Class 2 and Class 4 (unfixed) National Insurance Contributions on your profits.
Liability
  • As a sole trader, you are personally responsible for any debts run up by your business. This means your home or other assets may be at risk if your business runs into trouble.
Advantages Considerations
As a sole trader, you can quickly adapt to changes in your business with minimal bureaucratic changes required. You have complete control over your business and accounting affairs. A sole trader is also ultimately responsible for any liabilities should anything go wrong and insurances should be seriously considered.
As a sole trader, you will not need to notify Companies House, nor deal with any administrative or accounting requirements which are required of Limited Companies.

Simply inform HMRC of your intentions to go self-employed and you can start trading right away. You should register the moment you start out as a sole trader otherwise you could incur a financial penalty from HMRC.

 Chapter 7 of the Income Tax (Earnings and Pensions) Act 2003 dictates that where an individual “worker” contracts with an agency, and is subject to control over the manner in which his services are provided, that agency is obliged to apply the rules of PAYE to any money it pays the individual for any work done.

For the purposes of taxation, that individual is treated as an employee. Most agencies will therefore not allow a contractor to be self employed where they have found work and remain in the contract chain supplying your services.

For more information please call us on
01707 871610

or email us at enquiry@churchill-knight.co.uk

Right Column Menu

Sidebar Navigation

Why Choose Us