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Sole trader
Sole trader Business Structure
The sole trader type of business structure is an individual who is self employed. This could include people working from home such as bookkeepers, dog walkers or mobile hair dressers. Similarly, they could be a proprietor who owns a business such as a garage, a corner shop or a bed and breakfast.
Setting up as a Sole Trader
Setting up as a sole trader is very easy, registration is simple and there are no fees to pay:
- Choose a suitable business name
- Register with HMRC for Self-Assessment
Management and Finance
Sole traders can raise money for their business by using their own personal finances and assets or by new business grants or loans from community groups or loans from the bank.
Records and Accounts
Sole traders are the easiest accounts to keep. There may be very few transactions and the rules surrounding their accounts are uncomplicated. They do not need to be audited or submitted to Companies House.
- Keep records of income and expenses
- Submit an annual self-assessment tax return (Normally SA100)
- Comply with HMRC regulations for PAYE, Pensions and VAT
Tax and National Insurance
There are normally two different to types of tax to pay which are dependent on profits. All profits after taxation is deducted can be kept:
- Income tax on any income after personal allowance
- Class 2 national insurance
- Class 4 national insurance on profits over the threshold set by HMRC
VAT
When the sales turnover exceeds the threshold set by HMRC, registration for VAT (Value Added Tax) will be required.
This involves the addition of VAT at the rate set by HMRC. This applies to all sales that are made and recording all VAT charged on purchases made. With the difference between sales and purchases paid to the HMRC on a quarterly basis.
Liability
Sole traders are not a separate entity from the business. As a result they are personally responsible and liable for any debts the business incurs. This could result in loss to personal property and other assets.
