A sole trader is a popular preference for people who quit their regular job and start their own venture. You might change the solo aspect of the business later, but initially, it seems like the right choice. However, the daily struggle for any sole trader is real since there is no one to rely on.
You should know the ins and outs of the industry before setting foot in it. If not, prepare yourself for some surprise that might not be the helpful ones for your business.
Here are some things you should be aware of the sole trading business before making a decision.
Registration Process is Simple
The process to register for a sole trader to pay tax is quite simple. You need to complete the registration process on the UK government website, which only takes a few minutes. You will receive a letter from HMRC with the 10-digit UTR or Unique Taxpayer Reference.
For those who already have an account, a CWF1 form is available on the site. Make sure you have the 10-digit UTR while filling the form. Construction Industry Scheme registration is essential for people working as contractor or subcontractor.
Sole traders are liable for any loan or debt businesses acquire while functioning. If somehow business returns no profit to repay the debts, the owner has to pay it from personal finances. Therefore, the sole trading is not meant for enormous debts.
On the other hand, limited companies are a less risky option for the owners if it requires too big of a debt. A small amount of fair credit loans in the UK is ideal to start a sole trading business.
Hiring People is Still Possible
A little help from an employee is required when the business starts making some notable gains. It can get overwhelming to manage everything all by yourself. To your relief, you can legally hire people while working as a sole trader.
You must pay the HMRC income tax and NICs after collecting them from new employees. The traditional method of payment will not work for your business. A Pay as You Earn scheme for payroll is recommended.
Inexpensive Admin Costs
When compared to a limited company, sole trading cost very less for administration and taxes. The efforts to set and run a limited company often invite a team of accountants. At the same time, the sole trading requires a little effort from your side to learn.
The registration process is minimal for sole trading. You don’t have to take enormous debts to start a business. However, you should check the loans for bad credit with no guarantor to stay on the safe side.
You must keep a detailed record of your finances for various purposes. The most prominent ones are tax return and finance management. The process seems intimidating but gets more comfortable with time.
The record should contain every detail related to your finances, both the inflow and outflow of cash. Sales are the most critical information that will also help you with the tax return. The expenses should all be recorded from receipts, bills, to any office stationery.
The Road to Limited Company
It is possible to change the business from sole trading to a limited company. There are numerous reasons why people chose to change their business status. Growth and risk are the two significant reasons you will find.
The only problem is the name associated with the sole trading business. There are chances the name is already registered for a limited company. In that case, you must change the name of your organisation no matter the sentiments it holds.
Sole Trading is Extremely Popular
As mentioned above, sole trading is prevalent in the UK. A recent study has suggested over 60% of the total businesses are registered as sole traders, which makes the total representation above 3.5 million out of 5.8 million registered companies.
The reason for this popularity is the simple registration and ownership. People make a profit and keep them, instead of a limited paycheque each month. The benefits and allowances are added advantage to the overall performance of the business.
Registration for VAT is compulsory for any business that exceeds the set threshold of £85,000. After registration, the cost of products will include VAT, paid by the customer. It is your responsibility to pay the HMRC the collected VAT.
Managing Every Business Process
Small trading is simply not making phone calls to potential clients and making sales. It involves numerous other tasks that fall only on the sole person working there. This makes the management stressful and overwhelming at times.
Sales and marketing are the essential skills to start any small trading business. Without it, expect your business to last as long as you have the capital to spend. Accounting, administration, and employee management are some more task that requires your attention daily.
Sole trading is indeed a popular choice of business, but running it is never easy. Expect a lot of roadblocks with no one to help. However, profit and growth are the two motivating factors for people to become sole traders.