A good accountant and reputable lawyer can advise you in the best course of business for your exact needs. Finding advisers that understand your exact type of business is the key. Following some key steps will help to get the most out of any service that relates to the running of your business.
If you are starting a new business, you might want someone with extensive knowledge to create or review your business plan and review the financial position of any existing business you are thinking of buying. Determining which business structure is best for you is something that an accountant can do, as well as value a business and help you to create a solid foundation to any business venture you start.
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Different Ways to Register as Self Employed
There are 3 different ways in which a person can register as self employed
- If you are going self-employed and never filed a self-assessment tax return, you can register online with HMRC and will be registered for Class 2 contributions at the same time.
- If you are going self-employed and have completed a tax form previously you can register an income which isn’t taxed at source and Class 2 contributions by completing the CWF1 form.
- If you registered as a sole trader previously you should fill out the CWF1 form.
For tax and national insurance purposes a sole trader’s income is counted as a whole and tax is calculated on your profits. If a loss is made there can be an offset of tax. Sole traders must be £2.85 per week for Class 2 NI contributions that should be done through the self-assessment function. This is set to be abolished in April 2018.
Value Added Tax (VAT) must be registered separately and needs to be paid and charged whenever there is turnover greater than £85.000 with the current standard VAT rate at 20%. Once you register for VAT you will need to charge VAT to all customers. Being VAT-registered means that you will be able to claim back the VAT you have paid on work-related costs.
It is possible that you will be better off if you register for VAT even if your annual turnover is below the annual threshold. This is most likely if the majority of your customers are VAT-registered businesses, so can reclaim the VAT you have charged them.
The Flat Rate VAT scheme might be the better option which prides a simple way of accounting for VAT through an annual percentage depending on your industry type. It is always recommended to consult your accountant if you have any questions on tax and VAT matters.
Sole traders must have different types of insurance such as Employer’s Liability if there are any employees; with other types of insurance being preferred such as public liability insurance and employer’s liability cover. There might also be industry specific insurance which is required.
Bank Account for Sole Traders
It is better for a sole trader to have a designated business bank account and not mix personal and business accounts. The account name can be in the person’s name with ‘t/a XX Company’ after it, denoting the name of the business the person trades under. Although there is no legal requirement to do so it is easier to keep track of the accounts at the end of the year. Shopping around will ensure that you find a good deal for a starter account which might include 12-24 months of no fee transactions, which would represent an immediate saving.