If you’re thinking about going it alone but don’t need a huge amount of capital to get started, and you’re more interested in giving self-employment a try-out before going bigger, then becoming a sole trader is probably the easiest way to establish yourself in business.
This is often the route chosen by for whom the constraints of larger organisations and conventional employment are just too heavy a burden.
As a sole trader, you don’t need to notify Companies House, or to deal with any of the usual accounting requirements that limited companies need to.
However, you do need to register with HM Revenue & Customs as being self-employed. If you’re a sole trader, this simply means you’re running your own business as an individual; you’re ‘self-employed’ and you get to retain all your business’ profits after you’ve paid tax on them.
It doesn’t mean you have to work alone. This is a common misconception. You can take on staff. The “sole” part just means that it’s you who is responsible for the business. You’re also allowed to use “simplified expenses” which allow you to use flat rates instead of working out actual business expenses; the latter necessitates more complex calculations.
HM Revenue & Customs have wealth of information available on their website or by phone on the different ways of establishing yourself in business and, specifically, trading as a sole trader.
For tax & National Insurance purposes, your business income will be calculated alongside your existing personal income. Unlike with a limited company, you will be personally liable for any debts you incur in the running of your business, so it’s best to seek the advice of a good accountant if you need finance for your enterprise.
For accounting purposes, you’ll need to submit an annual self-assessment form to HM Revenue & Customs and to keep accurate records of all business income and expenditure. You’ll pay income tax and national insurance contributions on all profits – but remember too that any losses you incur can be offset against any income you have from other sources.
Naming your enterprise can be good fun. You can call yourself pretty much anything, but you can’t use anything like ‘Limited,’ ‘Ltd’, or ‘public limited company,’ ‘plc,’ etc., of course. Also, you can’t use “sensitive” words or expressions or use any name which is too close to a registered trademark or any existing business in a similar sector; so “McDonalds” may be out if you’re entering the fast food business, for example!” Also, any name mustn’t be offensive – and, finally, you have to include your own name and business name (if you decide to use one) on all official paperwork.