Setting up as a sole trader can be the simplest, and most rewarding, way to run a business. You won’t need to pay any registration fees and it’s straightforward to keep accounts and records. Most importantly, however, you get to keep all the profits. You will be on your own though, so it’s you alone that needs to make sure you are up to date with all legal requirements and have the appropriate business insurance in place. It’s also not without its risks as you’ll be personally liable for any debts that your business runs up, which can therefore make it a risky option for businesses that may need a lot of investment.
You’ll need to raise the money to get your business off the ground, by using your own assets and/or with loans from banks or other forms of lenders. This can be an extremely daunting prospect, so make sure you go in with a full business plan, get the amount you need to borrow right from the outset, and treat negotiating for money with the same passion and tenacity as you would do when trying to make a sale.
While operating your business as a sole trader you’ll still need to ensure you have appropriate business insurance in place. In most instances this will be either public liability or professional indemnity insurance. With that in mind it’s worthwhile to seek professional advice on which is the most appropriate insurance for your business needs.
Tax and National Insurance
When setting up as a sole trader, you’ll be self employed, which means:
- Your profits are taxed as income
- You pay fixed-rate Class 2 National Insurance contributions (NICs) regardless of any profits you make
- You pay Class 4 NICs on any profits
- You need to register for Self Assessment and complete a tax return each year
Records and accounts
It is imperative that you keep records showing all your business income and expenses. When starting off it may be advisable to get in touch with a professional accountant who can provide you with all the details on how to keep your accounts professionally maintained and up to date.
One of the biggest factors to take into consideration when setting up as a sole trader is that you are personally responsible for any debts that are run up by your business. In reality, this means that your home or other assets may be at risk if your business runs into trouble.