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UK Sole Trader

Here are some questions people ask when looking for information about setting up a business in the UK. The information on this page relates specifically to setting up a business as a sole trader.

1. What is a sole trader?
If you are considering setting up a business on your own, then you will be known as a sole trader. This is the simplest business to get started with and you use your own capital. It initially consists of only one person you, which means there are very little legal formalities for setting up the company.

2. What are the advantages of remaining as a sole trader?
When you remain a sole trader, you are able to give more personal service to your customers. You can also make changes to your company whenever you wish and there is little or no bureaucracy because you make all the decisions with respect to any aspect of the company. You have complete control at all times and you own all the profits. You can use the money you make from the company any way you want without having to answer to anyone.

3. How can I expand my sole trading business?
The amount of expansion you do with your business depends on the amount of capital you have available to spend on expansion. Investing in the growth of business is often hard because you have to look for investors, which also means a loss of some control when it comes to how you spend the profits.

4. What are the liabilities of sole trading companies?
Sole trading companies are liable for all losses that the business sustains. You do need to examine the implications of your business and if you have to file for bankruptcy, this could mean the loss of your personal possessions, if you used them as collateral for a loan. You do need to have a business plan in place so that you can see where you hope to expand and how you can prevent business losses from occurring.

5. How do sole traders pay income taxes?
Sole traders must complete a self-assessment form for income tax purposes. On this form you will give a total of your expenses and then a total of the income your business generated within the past year. Then you subtract the smaller amount from the greater amount. If you show a loss, then you do not owe any taxes to the government.

6. Can I show a loss for tax purposes every year?
It is normal for new businesses to show a loss for the first one or two years. However, if you consistently show a loss, the Inland Revenue will start to wonder why you are continuing in business and will probably want to conduct an audit.

7. How does being a sole trader affect National Insurance?
Being a sole trader means you are self-employed, but you will lose your benefits under National Insurance. It does mean that you are responsible for maintaining the National Insurance payments relative to your income. All self-employed people pay class 2 National Insurance, which at the present time is £2.00 per week. If you have annual profits between £4615 and £30,940 you have to pay National Insurance at the rate of 7%.

8. Can I register my sole trading business as a VAT?
You are allowed to register your sole trading business as a VAT no matter what your annual income is. However, there are certain circumstances under which you have to register your business as a VAT. These are:
  • At the end of the month that your income reaches £56,000
  • At any time you expect your income to exceed £56,000

9. What are the advantages of registering my sold trading business as a VAT?
Registering as a VAT allows you to:

  • Claim VAT on any supplies that you purchase for your business
  • Give the impression to customers that you are actually a larger company that what you are.

It can also make the difference in getting customers because some people like to deal only with a registered company.

10. How can I register a sole trader business in the UK ?
To register a sole trader business in the UK , you can download the application form from the [Hmrc website] and then just complete it and fill it in. One thing that you do have to remember is that with a sole trader business, you do own all the profits, but you are also responsible for any debt that you accrue in the business. You do have to make an annual assessment of your revenues to the HMRC and you have to keep records of your business income and expenses.

11. How can I register for VAT as a sole trader?
This is the website you can use to obtain the forms you need to register for VAT as a sole trader. The threshold for registration is £58,000. If your business generates less revenue than that amount, you do not have to register, Once it exceeds that amount, then the law requires you to register for VAT. [Click here for the Online Form.]


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