Between 2013 and 2014 roughly 326,000 people became sole traders and the number of sole traders in the UK has risen by 123,000 since the start of the year.
As a sole trader you are responsible for debts, bills, records, tax, VAT, self assessment and national insurance. You also need to register with the Construction Industry Scheme (CIS) if you’re a contractor or sub-contractor in the construction industry.
Sole traders can take on employees just like any other business. If you do, you will need to collect income tax and NICs from them and pay these to HM Revenue & Customs. You will therefore need to operate a Pay As You Earn (PAYE) payroll system.
You must fill in a tax return form if you’re a sole trader, a partner in a business partnership or a company director. You’ll get a penalty of £100 if your tax return is up to three months late.
You need to make sure that you spend your time wisely, a true business mind is one that is in several places at once. Know what tasks are more important and learn how to prioritze.
- 72% of newly self-employed professionals prefer it to salaried work.
- A survey by RSA found only 15% chose self-employment due to lack of options.
- 50% chose it to have more freedom.
Insuring your company is a must, especially if you have expensive equipment lying around. The UK general insurance industry paid out on claims worth £32.1 billion in 2014, something worth thinking about.
The number of VAT and/or PAYE businesses is estimated to have risen by 18,000 (0.9%) between March 2012 and March 2013. If your business has (or you expect it to have) a turnover of more than £60,000 a year, you need to apply for a VAT number.
Invoicing clients for work as soon as terms are agreed is one way to ensure a faster payment. The sooner you invoice for work, the sooner you can be start the work and the sooner you will get paid for the work.
According to HMRC’s Personal Income Statistics the average income for self-employed person in the UK is around £13,500 per year. This rises to approximately £19,000 for full time sole traders.
Hundreds of UK companies lose out on owed money due to lack of chasing payments. The longer it remains unpaid the harder it will become to attin it.
- In the UK, companies and public corporations represent 64% of total businesses.
- London accounted for the largest number of businesses in 2013, with 17.2% of UK total.
It’s hard for a business to grow with little or no development. You can develop your business by trying and testing new ideas and gaining valuable feedback from existing or potential customers.
You don’t have to register a business name if you’re a sole trader but there are rules on using a business name. For example, you can’t use the terms ‘limited’, ‘LTD’, ‘public limited company’, ‘PLC’, ‘limited liability partnership’, ‘LLP’ or their Welsh equivalents.
If your circumstances change, consider incorporation. Between March 2012 and March 2013 there was a 5.2% reduction in the number of sole proprietors and partnerships, while corporate businesses increased by 4.4%.
Investing in an accountant can really help with your time management as they can help you with all kinds of paperwork such as tax returns, VAT registration and expenses.
Infographic by Boothby Taylor Ltd