Starting your own business?
Then start here.
So you’ve decided to quit the rat race and go it alone. Now you’ve hopefully come up with a glorious money making scheme, or at least a business idea, there are a couple of things you’ll need to do to get started.
Before you start your scheme (*ahem* business), you need to register with HMRC. The most common way to do this in the UK is to register as a sole trader. Typically this type of business is pretty small (and of course perfectly formed), with a single owner. This kind of business is fairly low risk to get started as you are basically informing HMRC that you are becoming ‘self employed’. All that means is that you have to register for self assessment and file a tax return every year.
For most types of business, becoming a self-employed sole trader is kind of ideal when you’re starting out. The paperwork is pretty minimal, accounting and record-keeping is pretty straightforward and you get all the wonderful benefits of being your own boss. Like deciding when to go on holiday or when to go to the pub.
Being a sole trader also means that you can keep all your business’s profits once you’ve paid the tax man. BUT you are also personally responsible for any losses your business makes. So you know, keep that in mind if you’re being too nice a boss about the holidays and heading to the pub.
Now there’s a couple of things to do to make sure your new business is legit. Firstly, you absolutely need to set up as a sole trader if any of these things apply to you:
- Earned more than £1,000 from self-employment between 6th April 2017 and 5th April 2018.
- Need to prove you’re self-employed (for example if you’re trying to claim tax-free childcare).
- Want to make voluntary class two national insurance payments to help you qualify for benefits like a state-pension without paying via a self assessment.
If any of these apply to you then you need to set up as a sole trader.
Part of being a sole trader includes a rather terrifying word, that most adults would love to avoid like the plague. That’s right RESPONSIBILITIES. These are:
- Keeping records of your business’s sales and expenses.
- Sending in a self assessment tax return every year.
- Paying income tax on your profits and class 2 and class 4 national insurance.
You’ve also got to register for VAT if your turnover is over £85,000 and you can register voluntarily if it suits your business ( for example, if you sell to other VAT-registered businesses and want to reclaim the VAT).
A quick note on naming your new fledgling business. You can trade under your own name, or choose another name. You don’t have to register your name but must include your name and business name (if you’ve got one) on official paperwork like legal letters and invoices. You also can’t include ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’. These are all other types of business and let’s be honest if you named your business any of those it wouldn’t be very interesting would it? You also aren’t allowed to call it anything rude so ‘Feckarse industries’ is out and it can’t be an existing trademark.
So now you’ve got our advice on setting up on your own why not get cracking? HMRC recommends that you register as a sole trader as soon as you can once you start trading. The very latest you can register is by October 5th in your business’s second tax year and you could be fined if you don’t register in time. Plus who wants to go through two years of tax filing at once when you could just set things up now and sort it as you go. Just remember that once you’ve set up you need to keep accurate business records right away which includes everything you spend on the business and everything the business earns. But don’t worry Albert can help you with that, so click the button below and start tracking your invoices and expenses.