What is a sole trader?
What is a sole trader?
A sole trader is an individual who trades on his/her own on a self-employed basis. If you start working for yourself as a sole trader, you will own and run your business as an individual and will keep all the business’s profits after taxes.
A sole trader is;
Liable to income tax on profits personally responsible for any debts of the business liable to class 4 and class 2 National Insurance required to file a self-assessment tax return responsible for registering their business with HMRC.
Registering as a sole trader is relatively straightforward and is the most simple business structure. This means less administration than forming and running a limited company. The accounting process is much more straightforward as you will need to submit a self-assessment tax return, but there will be no need to file annual accounts or a Corporation Tax Return.
How do I pay myself?
As a sole trader, you do not need to pay yourself through PAYE or dividends. Whilst you won’t pay tax on any money you take out of the business as drawings, the tax will be assessed on the profits of the business. The profit is declared on your self-assessment tax return. Good bookkeeping will enable you to keep up to date with your tax and national insurance liability so that you can put the money aside throughout the year.
What are my responsibilities?
You must inform HMRC once you have started trading. The deadline to do this is 5 October following the tax year in which you started trading.
You also must file your tax returns and pay your tax by 31 January
As a sole trader, it is your responsibility to ensure that you keep all of your business records such as:
- Sales invoices and purchase invoicesReceipts for business expenses
- Business bank statements
- VAT information (if VAT registered)Wage slips and summaries if you employ staff
- Details of loans and capital items such as machinery, cars etc.
- Books and records should be kept safely – there are rules surrounding how long business records must be stored for.
How do I register as a sole trader?
Registering as a sole trader is easy. You will need to have some basic information to hand such as your National Insurance number, date of birth, address, start date and telephone number. There are three ways to register;
Use the HMRC online service. This involves completing and submitting an online formFill in an on-screen HMRC form. Then download your completed form, print it off, and send it to the address on the form telephone HMRC on 0300 200 3310 or textphone 0300 200 3319.