Sole Trader & Self Employed Accounting

What You Need To Know

Setting up as a Sole Trader is the simplest way to get your new venture off the ground but watch out; you and your business are one and the same, so if anything goes wrong you'll be personally liable for any debts.

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The Sole Trader route is the most popular way of starting a business in the UK. However, it's not for everyone. RIFT Accounting is here to talk through your options and help you decide what's will work best for you.

Generally, you should register with HMRC the moment you start out as a sole trader, so you don't get stung with a nasty penalty.

You don't need to register with Companies House, but it might protect your brand if you do. If you're unsure whether you need to register as a sole trader for what you’re doing, give us a call.

Here's a taste of what we can do for you:

  • Deal with HMRC on your behalf, officially becoming your agent and keeping The Man off your back.
  • Help you to fill out the form(s) to register for Self Assessment with HMRC.
  • Complete your Self Assessment return on time every year for you.
  • Help set up your Class 2 National Insurance payments, which are generally by monthly direct debit. 
  • Register you for VAT and then calculate and inform you of the VAT payments you will need to make quarterly if you reach a sizeable turnover.

Keeping Accurate Business Records

Clear and accurate records of all your sales and expenses are crucial to the survival of your new business. You should keep all your receipts, invoices, bank statements and any other paperwork in a safe place. Clear Books is ideal for this.

Remember, you can easily switch to the Limited Company route later if you want to.

Paying Your Dues: Tax & National Insurance

After registering as self-employed, you should automatically be sent a Self Assessment notice at the end of each tax year (6th April to 5th April).

As a Sole Trader, your business income is counted alongside any other personal income you have for tax purposes, so accounting is relatively straightforward. We'll help you fill out and submit your paperwork, and let you know what kind of National Insurance you have to pay on your business profits.

You'll have to register for VAT if your annual turnover reaches the current threshold, or if you expect it to do so in the coming twelve months. In certain circumstances you might be better off registering for F;at Rate VAT even if your annual turnover is below the threshold.

RIFT can advise on the best VAT registration set-up for you. Our Clear Books software has a dedicated VAT module to manage your returns, and calculators to help you work out your invoices.

Your Legal Responsibilities as a Sole Trader

If you're a wild-eyed rebel on the fringes of society (Known on the street as the Bank-Loan Wolf), then the odds are good that you're a Sole Trader. You're running your business as an individual and your customers are paying you directly. Your profit is your personal income. Life is good.

The thing is, much as it clashes with your rugged, sexy image, you've still got personal taxes and National Insurance to pay. You may not have to run a payroll to pay yourself, but the law makes no distinction between yourself and your company so you stand to lose more than that awesome denim shirt with the sleeves ripped out if it all goes wrong.

For example, under your sole trader responsibilities

  • you can be fined if you don't register yourself as a Sole Trader within three months of scoring that first bounty.
  • You're personally liable for all losses your business may make, along with any claims made against you by unhappy customers.
  • Under your sole trader legal responsibilities it pays to make sure your bookkeeping is top-notch, because every business-related expense or windfall needs to be accounted for.

Here are some further things that you should also consider for your sole trader business.

Sole Trader Bank Account
You don't need a separate bank account from your personal one, but we would recommend it. You don’t have to use the bank where you have your personal accounts, so it's worth shopping around. We can talk through your options.

Business Insurance for Sole Traders
Some insurance is mandatory, like Employers’ Liability Insurance if you employ people. Others may be required for specific industries, or if customers or clients require it. Some simply offer peace of mind. It's important to know the difference.

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