Setting up as a sole trader in the trades
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Sole traders are the backbone of the building business, with over 4.5 million of us working for ourselves. Here’s what you need to know to set up as a sole trader.
As a sole trader, you’re not an employee, but you’re running a business. Once you’ve paid off all taxes, you’ll be able to keep any leftover profit.
As soon as you start working for yourself, you’re classed as a sole trader by HMRC – even if you haven’t told them. Legally, you’re required to register as a sole trader if you’ve earned more than £1,000 from self-employment in the last year.
You can start the process through the Government’s website.
The first thing to do when setting up as a sole trader is to choose a name. Your business can be called anything (within reason), including your name, a description of what you do or something completely random.
Being a sole trader means you’re responsible for your tax affairs and paperwork. You will need to register for self-assessment tax and complete a tax return every year.
Five things to know
- Register quickly - If you don’t register with HMRC within the first three full months of becoming self-employed, you may have to pay a penalty of £100.
- Do-it-yourself - There are loads of sites that will charge you a fee to set-up as a sole trader, but they’re just making money off something you can take care of. You should be able to register for self-assessment yourself in less than an hour.
- Set up a business bank account - You can use your current account, but it’s much easier to keep track of spending if you use a separate bank account for your business.
- Start saving - The minute you start earning, start saving for tax, NI contributions and your pension.
- Keep records - You should keep records of everything, from the hours you've worked to all receipts and expenses.
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Benefits of being a sole trader
Being a sole trader has some significant benefits to you, which include:
- The freedom and flexibility to work when, where and for whom you want. You’re not tied to one employer.
- A bigger wage when compared to a take-home employee salary. Remember, your day rate needs to cover everything, including tax, NI, pension, holiday pay and sick pay.
- The ability to claim expenses. Everything you need to do your job, including tools, clothes and your van, can be claimed as a business expense.
- Once you’ve paid all bills and taxes, you get to keep any leftover profit.
Considerations as a sole trader
Being a sole trader means you’re running a business, and there are some downsides to that.
- There’s a lot of paperwork. Invoices, assessments, taxes and tick-boxes. You’ll be responsible for it all. It can feel quite daunting at the start but trust us, it gets easier.
- You don’t get sick pay, holiday pay, paid bank holidays or paternity leave - you’ll have to budget for those yourself.
- You’ll need to start saving straight away to pay for things such as your tax, NI and pension. You should also build up a pot to cover you for sick days and holiday pay.
- You might also require specific types of insurance and protection that can add to your monthly outgoings.
- If your business makes a loss, you’ll have to cover it.
Setting up as a sole trader is straightforward and shouldn’t take longer than an hour. It’s the simplest way to run a business, which is why it’s so popular. With millions of sole traders already operating across the country, you could be up and running with them in no time.