Should I become a sole trader?
At one time or another, we have all dreamed of being our own boss. The idea of steering your own course, being successful at something you love – and owning all of the profits – is an attractive prospect.
For those that make it a reality, the most popular option is to go into business as a sole trader. They make up 59% of the UK’s self-employed population, and when you consider the benefits it is not hard to see why.
However, it is important to weigh up the pros and cons before taking the leap. At Approved Accounting, we work on behalf of many successful sole traders, providing valuable advice and services such as online accounting, and submitting self-assessment tax returns.
Call us today for a consultation and read on for our helpful guide on the things you need to know about becoming a sole trader, including how an accountant can help to make your business the success you dreamed of.
What does being a sole trader involve?
If you are a sole trader, then you are your business. Your legal identity and that of your business are one and the same, meaning that you are personally liable for its activities and finances.
You are expected to pay tax on any earnings above your tax-free Personal Allowance, so you will need to register with HMRC online and complete an annual self-assessment tax return. Depending on your earnings, you may also be required to register for VAT.
So, as well as being head of marketing, operations, customer service, and admin, you will also have to wear your financial director’s hat and take care to keep accurate sole trader accounts, detailing income, expenditure and profit. You must also make sure that you meet HMRC deadlines, or you may face fines.
For many business owners, the prospect of accounting, bookkeeping, and tax returns can seem daunting, or at the very least, unappealing. At Approved Accounting, we know that managing your sole trader accounts can seem like a chore when you are eager to grow your business. We can help to take the burden and support your fledgling or established sole trader business with our accountancy services.
The advantages and disadvantages of being a sole trader
As with all business ventures, there are pros and cons involved in becoming a sole trader, so make sure you make an informed decision.
- Complete control: Perhaps the most appealing benefit is that you are completely in charge of your business, with no partners, directors, or investors to answer to. All decisions start and end with you, giving you the freedom to run your business as you wish.
- Sole ownership of profits: As a sole trader, you get to keep every penny you make after you have paid your tax and National Insurance to HMRC.
- Ease of start up: Once you have registered with HMRC for self-assessment and have settled on a business name, you’re good to go. There is no need to register with Companies House as you are not setting up a company.
- A good introduction to self-employment: Starting a sole trader business is an excellent way to dip your toe in the pool of self-employment. If your business takes off and you feel it would be more beneficial to become a limited company, it’s simple to do so down the line. Approved Accounting can also help support your business as a limited company owner.
- The buck stops with you: While some may relish the idea of having complete control, it may not be all it’s cracked up to be. When the success of your business hinges on your every decision, it can be a source of stress. Also, working as a sole trader may mean a loss of income if you have to take time away.
- No limited liability: Sole traders have to shoulder the burden of their business debts alone. They have unlimited liability which means that personal assets could be at risk if debts start to mount.
- Harder to secure investment: It is harder to secure financial backing than it is for a limited company, and you may find you have to work harder to convince a bank to invest in you, unless you have personal assets you can offer as security.
Affordable accountancy packages for sole traders
At Approved Accounting, we provide valuable accounting services to sole traders to help their businesses thrive.
- Bookkeeping: Allow us to shoulder the burden of managing your sole trader accounts by taking care of the recording of your business income and expenses, and production of reports so you know how your business is performing.
- Self-assessment tax returns: As a small business owner, we can ensure you are fully compliant with HMRC deadlines and procedures, and take care of all of the time-consuming paperwork. We will also ensure that you take full advantage of any tax efficiencies available to you.
- Effortless online accounting: We can offer a secure online accounting system that enables you to seamlessly take control of your finances. Xero is the UK’s leading cloud-based accounting system so can be accessed even when you’re on the go. As Xero Gold Partners, we can educate and inform you on how your small business can make the most of its applications and show you time-saving tools to help your business grow.
Why choose Approved Accounting?
- We will save your sole trader business money and time: We will ensure your accounts are watertight and will help to identify ways to become more efficient. We will take care of the detail, giving you more time to focus on growing your business.
- We can offer you peace of mind: From tricky terminology to daunting deadlines and unfamiliar rules and forms, you can rest assured that your business accounts will be in order when you work with Approved Accounting.
- We go above and beyond: At Approved Accounting, we know how important it is to get to know our clients personally and understand their business. Our services go way beyond basic bookkeeping and we are passionate about helping small businesses succeed. We can offer advice on ways in which you can structure your business, plan for the future, manage cashflow, build an efficient system, and even raise capital for expansion.
- We keep things simple: As a business owner, we appreciate that you don’t have the time for the intricacies of accounting. We will keep you informed in a timely manner with exactly the right amount of detail, free of jargon.
Frequently asked questions
Do I need an accountant if I am a sole trader?
Legally no, but many sole traders enjoy the benefits of our monthly accountancy services, which save time, provide peace of mind, and value for money. Having an accountant on hand for advice can also be tremendously comforting as a new sole trader, especially if you have no previous experience with tax, self-assessment, bookkeeping, or VAT.
Do I have to pay tax and national insurance as a sole trader?
As a sole trader, you are required to pay income tax on all profits exceeding your Personal Allowance of £12,500 per year. You are required to register for self-assessment if your earnings are above £1,000, if you need to prove you are self-employed, or if you wish to pay voluntary National Insurance to qualify for certain benefits. If your sales exceed £85,000 per year, you will also have to register for VAT.
Is a sole trader and self-employed the same thing?
If you choose to start your own business, there are various structures available to you. For example you could become a sole trader, form a partnership with someone else or start a limited company. So, while not technically the same thing, a sole trader is someone who is self-employed.
What services do accountants for sole traders provide?
By investing in an accounting service for sole traders, you will enjoy many benefits. Your dedicated team of accountants can offer valuable day-to-day advice on running your business, as well as a range of services to free up your time. If you are just establishing your business, accountants can advise on the right business structure for you, and help set up your accounts and register you with HMRC. Your accountant can also support you in raising capital, by offering advice and references.
Once your business is in full swing, you can opt for accountancy services such as bookkeeping, filing self-assessment tax returns, and producing annual accounts. As a sole trader, you are permitted to hire employees, so you may also choose to take advantage of payroll services. Accountants can also provide you with easy to use bookkeeping software and online accounting, allowing you to access your accounts wherever you are.
How much do sole trader accountants cost?
While it’s prudent to manage your costs when you are self-employed, you may be pleasantly surprised by sole trader accountant fees. Approved Accounting can offer bookkeeping packages with an affordable monthly fee.
Get in touch with Approved Accounting
At Approved Accounting we can tailor our fixed fee packages to meet the needs of your sole trader business, and we are proud to say that many clients consider it best business investment they have made.
To find out more about how Approved Accounting can help your sole trader business, please contact us today.