In the world of business, virtually everyone either thinks about starting their own small business or work as a freelancer. And as a result, self-employment had been the new realm. A sole trader is a person who runs a business. He or she owns and manages the business such that the owner and the investment exist as one unit.
Obviously, amidst several other forms of business ownership, a sole trader is the simplest structure as it is relatively easy to operate and can be established at a very low cost. As a sole trader that you are, you will be required to make certain decisions from the onset and through the day-to-day running of your business.
However, apart from all these, here are some other key facts that you must know about a sole trader: is the most popular option
In 2018, it was gathered that up to about 60 percent of businesses in Britain were sole traders. What this depicts is that out of a total 5.6million, about 3.4million businesses were owned by self-employed people—whom largely drive the economy of the United Kingdom; Although popular opinions has it that sole traders are entitled to pay tax to the government, nonetheless, the profits that remain is still sufficient to be kept even after considering other allowances and reliefs.
- Registration is way too easy
If peradventure you desire to know how to become a sole trader, then you would be required to register for self-assessment just before you are granted the opportunity of paying sole trader tax. For instance, self-assessment is the system used by HMRC to collect income tax in the UK. This registration is very easy as it can be quickly done online. After registration, the body would then send you a letter with a 10-digit Unique Taxpayer Reference (UTR) and set up your account for the service.
- Personal financial risk is unavoidable
In a more relatable manner, it is very important to note that a sole trader is the business itself and never is it a separate legal entity. However, if you form a Limited Company, you would then become one—a legal entity; Hence, what this means is that you’re in charge of your business and liable for any debt incurred. If your new business is one that would not incur much debt, being a sole trader would be a bit less risky but if the case is different, then the personal financial risk is something you cannot avoid.
- Financial records must be well-kept
One important fact you should know is that a sole trader should be well-versed in keeping records of business finance. This includes the details of all sales made. Also, it is important to keep proof of every expense—receipts, invoices, and utility bills. Keeping details of finance is not as difficult as it sounds, in fact, doing this would help you when filing your tax returns.
- Expansion into Limited Companies is possible
An obvious fact is that the size and nature of your business can change so quickly. It doesn’t matter whether the intention you have is to expand your business into a limited company or not. You can decide to incorporate your brand while making use of your registered name at a later stage while adding “Ltd” behind. But you must ensure no one else has your business name registered before you.
- Dynamism is of high essence
As a sole trader, it’s very important that you take to dynamism because you have to play major roles in your business. More importantly, you have to be good at sales and marketing. If you’re not making many sales as expected, the business is already a failure. There are quite a number of other administrative tasks that you should be able to take care of as well. These are what would be the success determining factors of your business as a sole trader.
Consequently, after taking into consideration the above facts, it’s only natural that some questions would pop-up on your mind. However, explained below are few misconceptions with their appropriate answers;
Can a sole trader employ staff?
Yes! Sole traders can have employees. Although, it’s not a common practice but you can employ people if you so desire. However, you would be required to collect income tax and national insurance contributions while operating on the Pay-As-You-Earn basis. Meanwhile, it’s only best that you speak with and solicit the advice of your accountant just before you make this decision.
Can a sole trader have two ABNs?
No! A sole trader cannot have more than one ABNs. However, if desired, he or she can run several enterprises with different name tags under the umbrella of a single ABN. That’s what’s permissible! For instance, if you are operating as an electrician and an electronics engineer, and want the two to be under their unique identities, then you should have something like Lakeside Electrical Works and Lakeside Electronics Works—leaving both names sharing identical ABN, while still holding their individual names.
What are the Insurance requirements of a sole trader?
It would be a great disservice if we do not understudy the TradeRisk insurance part of a business to a sole trader. You should be well-informed that your trade insurance prerequisite is the same as what we have in companies. And that’s why at trade risk, our insurance policy provide that it get written in your name and, in fact, you can also have a choice to include any business or trade name of choice—however, it’s more advisable to write down your name in place of that of the business because it is the former that’s actually getting insured.