Getting your Self Employed business right from the start

Is Becoming a Sole Trader the right option when going self Employed?

This would have to be one the first questions everyone asks when thinking about going self-employed would ask themselves and for a good reason. Getting your business structure right at the start can have a massive effect on how much work you have to put in “running your business” and how you pay taxes to HMRC.
The two most common business structures in the UK are Sole traders and Limited Company Both have there benefits, While this article will mostly outline Sole trader, it’s important to know the differences of Sole trader vs. Limited company.

There is more great information below but if you’d like to talk to us about your accounting needs then please call us on 01229 440184  or click the button.

Sole Trader or Limited Company

SituationSole TraderLimited Company
OwnershipYou personally own the businessYou own share in the business
Employment StatusYou are self Employed
You are the director
ProfitsTax as Income tax
Company pays Corporation Tax & You pay Income tax
LossesCan be offset against income
Can be offset against income
InsolvencyPersonally liable
Limited liability
Paying yourselfCan withdraw profits
Salary subject to PAYE and NIC’s
ExpensesTax relief of business expenses
Tax relief of business expenses
Working from HomeCan claim mortgage interest, rates, light & heat£4 per week

There aren’t have right or wrong answers here, and it will come down to your personal situation, but as a rule of thumb, Sole trader is best if your income will be under £60,000pa or operating as self-employed as a second job.

Now if you think that Sole trader is the right option for you there are some things you have to do to let HMRC know that you’re going self-employed but don’t worry compared to the time and expense it takes to form a limited company it’s a breeze.

Registering as Self Employed.

There two main ways to register as self-employed, which is the same as registering as a sole trader, the first is by call HMRC on Self Employed helpline on 0300 220 3504. Surprisingly this helpline is well staffed and quite fast for HMRC standards. The other option is the do it online via the New business registration page.

Information you need to register as a Sole Trader

  • Your Full Name
  • Date Of Birth
  • Address
  • National Insurance Number
  • Business start date
  • Name of business
  • Type if Business

Note: if you’re working in industries that you need to a license or permit like child minding or Taxi driver it’s a good idea to have these before you submit your details to HMRC

Business Bank accounts for Sole Traders

While Legally you can use your personal accounts when trading as self-employed it is best practice to have a separate account for all your business income and expenditure. The Reasons for this are listed below, but one reason why you might want to use your personal account is that the fees from the bank are much lower for personal accounts.

Use different bank accounts

Why you should have a separated Business bank account

Having a business account is the most effective way to keep track of your income and expenditure. While legally you don’t have to have one it will save you a lot of time in the long run. If you have multiple businesses, it’s also a good idea to have an account for each of your businesses.

If you do by chance, happen to make a business purchase from a personal account, if you keep a record of it ( it’s really easy with SimpleX), and it can be offset against your income for taxation proposes.

Some more reasons why:

  1. Some Banks don’t allow you to run business via personal accounts, so it’s always best to check the terms and conditions for your account
  2. Your business name and account name may not match so if you receive payments via cheque you will not be able to deposit them.
  3. If you would like to take payment via credit or debit card, you will not be able to with a personal account as merchant providers require a business account.
  4. When it comes to bookkeeping and managing your accounts, it is much easier only to be looking at an account that only has business transactions
  5. With a business account, it’s much easier to get an overview of the health of your business.
    Profit can be left in the account for further investment without the risk of it being used for personal expenditure
Sole Trader Accounts – Whats involved and how to do them