A sole proprietor or sole trader is a person who sets up a business on his own. The most common types of sole traders are those who work freelance. The process of setting up a sole tradership is very simple - registering the business is not compulsory. In this article, find out how to set up a business as a sole proprietor.
How to set up as a sole trader
If you have a business idea and you do not intend on employing any staff, then a sole tradership is perhaps the best way of setting up your business. Many freelance workers set up as sole traders as a significant proportion of them work from home.
Inform the HMRC
However, when you are a sole trader, you are responsible for paying your own tax and national insurance, and you must inform the HMRC that you are working in a self-employed capacity, even if you are also working full or part-time whilst you set up your business. When your details have been registered with the HMRC, you will have to set up a direct debit for your national insurance and will be required to fill in an annual self-assessment tax return.
Responsible for debt Perhaps, the only significant problem with a sole proprietorship business is that you are responsible for the debt. Therefore, if your business gets into difficulty, personal assets such as property and contents can be seized to recover the costs of the debt.
- Keeping records is relatively straightforward as with a sole tradership, it is unlikely that significant sums of money will be spent on the business. - You do not have to pay any registration fees for registering a business name. - If you work from home, you will have little or no overheads. - All the profits that you make are your own. You are free to make all of the decisions about the business, from finance to marketing and advertising. Checklist for being a successful sole trader - Keep your records up-to-date. Spend a day or an afternoon a week getting your books up-to-date. - Log every expense and outgoing accurately. - Use a spreadsheet to work out your costs. - By using a cash flow template you can ascertain which are your most expensive purchases, and identify whether your outgoing money is more or less than your incoming money.