Sole traders - getting started

caff

caff

caff

Soldato
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Anyone setup as a sole trader? I've got lots of questions for you :)

1. I'm looking to become a sole trader, in the evenings, running a website business. I'm wondering about how you manage your finances? (e.g. Excel, on-line banking statements, Microsoft Money etc.)

2. Should I get a dedicated business bank account? What are the benefits of having one? I know there are charges with having a business account, whereas not if I used my personal account.

3. What taxes do you pay?

4. Do you need an accountant as a sole trader?

5. Do you have liability insurance?

6. If I have a fulltime job, do I legally have to declare to my employer than I am running a business on the side?

Ok that's all for now, thanks for any help :)
 
You might be better off asking where you can find this information out for yourself. If these are your only questions before starting up i would be rather worried. Is your business plan comprehensive?
 
My business is ready to run (ie. I have a website setup and all the products ready to start selling).

I've done a lot of research on various websites such as the Inland Revenue and Business Link, and it seems if I can finalise some of the details of what steps I need to run a business, I'll be set to go.

I don't expect answers for everything, but if anyone has experience as a sole trader and has tips for gettings started, I'd appreciate any insights or advice.
 
Like the above, you need to speak to a solicitor or a business advisor, but here's a couple of bits...


Reply to 2: Yes, you would need a separate bank account. The terms & conditions of your personal account will have a clause saying you musn't use it for business purposes.

Reply to 3 & 4: If you can do your own bookkeeping and tax returns, then no, but I would highly recommend it anyway. There is no requirement to prepare formal accounts, but you must complete a self assessment tax return.

Reply to 6: Yes, you must do this. In fact, you'll find you'll have to obtain their permission BEFORE starting any other job.
Your terms & conditions of employment will say that your employer has the right to stop you taking on another job if there is the potential for a conflict of interest with your main job, so you have to obtain their permission first. If you don't get their agreement, they can force you to give up a second job, or fire you.
Plus there are implications for the way in which you are taxed on your salary, especially if the income from your second job pushes you into a new tax bracket.

Check out www.businesslink.gov.uk and www.hmrc.gov.uk - and speak to a solicitor!

Hope that helps.

[edit] You beat me to it with the bit about businesslink and the hmrc sites![/edit]

[edit 2] IIRC you also have to tell the revenue that you've started a business within three months of doing so, otherwise you're liable to be fined! [/edit2]
 
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im kinda in the same position here starting my own tiling work, ive gotta look into it all :( shame u cant just get the cash in hand and whack it into ya bank account
 
Cool thanks. Any good tips for a business bank account?

I don't need a cashcard or chequebook, just a depository to take incoming payments from PayPal. Preferably on-line banking only too, I don't need necessarily need a high street bank. There will be minimal outgoings (ie. only really merchant payments to PayPal, maybe webhosting costs)

[edit]I hold a mortgage + current account with Natwest - should I speak to them? I also have savings with Egg but they don't seem to have a small business setup[/edit]
 
I wouldn't do your own acounts if you don't know what to do....in fact i have an exacm tomororw on Trial balance, Profit & Lost, Balance sheet, Appropriation Accounts and something call the Acid test/gearing....etc
 
caff said:
1. I'm looking to become a sole trader, in the evenings, running a website business. I'm wondering about how you manage your finances? (e.g. Excel, on-line banking statements, Microsoft Money etc.)
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Keep it simple initially. A spreadsheet will do but be prepared to have your bookkeeping requirements grow with your business. I suggest having a simple speadsheet system initially then, when you have outgrown that, go straight to a basic Sage package.


caff said:
2. Should I get a dedicated business bank account? What are the benefits of having one? I know there are charges with having a business account, whereas not if I used my personal account.
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Yes. Apart from anything else it helps you manage your business better. And it need not cost you anything. Check out the A&L Commercial bank for free banking. There's also a business startup package from them with extra benefits.


caff said:
3. What taxes do you pay?
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Whatever that thieving ******* Brown can squeeze out of you. As a sole trader you will submit an annual tax return which will show your paye income from your present employer plus income from your business then take into account tax and nic paid by and via your employer and allowable expenses in your business. You are liable to tax on your PROFIT - after allowable deductions.


caff said:
4. Do you need an accountant as a sole trader?
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No, you don't. But I recommend that you do engage an accountant for the first year at the very least. He'll give you good advice and be just a phone call away. He'll complete your first year's accounts and forewarn you of how much tax you'll be liable to. He'll also prepare your tax return. At the end of your first year you can then take a decision as to whether to retain him for the future. If your business remains small then you may decide to do this yourself using what the accountant prepared in the first year as a guide. One alternative, after the first year, is to employ the services of a bookkeeper. Such a person will keep your business financial records in order and may reduce the need for an accountant beyond that first year. Here's hoping that you will need both bookkeeper and accountant.


caff said:
5. Do you have liability insurance?
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Probably. And you will need indemnity insurance but you will need advice on this from someone already in the industry.


caff said:
6. If I have a fulltime job, do I legally have to declare to my employer than I am running a business on the side?
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This will depend entirely on the terms and conditions of your contract of employment.

DYOR

Good Luck


/edit

IMO you don't need to follow the advice above about a solicitor. Unless you are going to be into something dodgy from the outset :p You need to look to accountants, business bankers, business advisors and fellow businessmen. Not solicitors.
 
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caff said:
I hold a mortgage + current account with Natwest - should I speak to them?[/edit]
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They are very good business bankers. But if your needs are straightforward then I think you'll find them unneccessarily expensive. I'm with them but I'll be moving business accounts within a fortnight - probably to the A&L Commercial but I'm still looking at Abbey.
 
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Thanks Caravan! That's some pretty comprehensive advice.

I'm having a look at Abbey - they seem to have a good approach - only charging for non-standard services. I may well pop into a branch and have a chat. I've always been impressed with Natwest too, so I'll see what they have to offer also.
 
1. I'm looking to become a sole trader, in the evenings, running a website business. I'm wondering about how you manage your finances? (e.g. Excel, on-line banking statements, Microsoft Money etc.)

If you know your way around Excel, yes thats a very useful one.


2. Should I get a dedicated business bank account? What are the benefits of having one? I know there are charges with having a business account, whereas not if I used my personal account.

Well youre open to a lot of tax payments with setting up a business, perhaps just sell and see how things go....you have 3 months (or years cant remember) to declare yourself as a business, why not trade first and see how successful you can be. No point setting up, lots of costs then making a few hundred pounds profit.

3. What taxes do you pay?

You said you read businesslink, etc...read it again ;) Im not 100% sure but it would probably be around 20-30% (if not more) in the end after your overall income from it.

4. Do you need an accountant as a sole trader?

Nope, if you make some good money its worth getting your accounts checked out for a few ££.

5. Do you have liability insurance?

Unlimited liablity - they can take everything and anything from your business or personal should you get into debt.

6. If I have a fulltime job, do I legally have to declare to my employer than I am running a business on the side?

Not as far as I know.

Many Businesses fail in start up, which is why I recommend you trade now and see how it goes, you got 3 months or years before you MUST declare yourself a trader. The government makes lots of processes, taxes, etc I think to put people off. Its good to get to grips with various legal aspects of running a business and your duty to the government so you have some good knowledge.

Hope this helps.
 
As usual there seems to be a lot of advice being given, some of which is going to hinder rather than help you. I'm self employed so I actually know what's involved.

1. You can manage your finances however works best for you. You don't have to use computers or any spreadsheets / software, but you will need to keep all your receipts and paperwork somewhere safe. You will need these later.

2. You don't have to use a dedicated business bank account. This was one of the first questions I asked my accountant when I started. You can usually use a personal account but obviously only if you are trading under your actual name (e.g. Pete Smith), and as long as you don't pay in more cheques per month than the account allows. Business accounts generally pay less interest and charge more for the privilege. My accountant worked at the Inland Revenue for years before branching out on his own, so if he says it's fine that's good enough for me. Whether the banks would agree is another matter.

3. You don't need to worry about what taxes you will pay yet. All you need to do from a tax point of view is contact the Inland Revenue (now called HM Revenue & Customs) and tell them what you are doing, within 3 months of starting up. If you miss the 3 month period you pay a £100 fine.

They will ask a few questions such as trading name, nature of business, address and a few more. This will take no more than a few minutes. They would usually then arrange for Class 2 National Insurance contributions to be collected from your bank account. However, the fact that you are going to be employed and self employed at the same time means they will have advise you on your NI contributions. You will already be paying through your other employment so Class 2 might not be appropriate in your case. Contrary to popular belief, they are very helpful and friendly on the phone so when you are ready to register just call them and ask away.

4. You don't need an accountant, but I would advise that you use one. The first few years are a bit of a nightmare as they collect half of the tax from the upcoming year, based on profit from the previous year. Your accountants fees are tax deductable anyway. It sounds easy enough to do your accounts yourself, but you will probably have some items (like hardware) which will be treated as capital allowances and these can't just be deducted from your taxable income like items such as stationary can. You get 40% of the purchase price deducted for depreciation in the first year, then 25% of the balance deducted for each of the next two years. Computers I believe were allowed at 100% in previous years, but now I think this has stopped.

5. Public liability insurance is required. I have £5million PL and it costs me around £120 a year. Don't work without it. I think it's actually illegal to be self employed and not have PL insurance, but don't quote me on that.

6. Not sure about this one. I guess your contract with your employer might stipulate certain things about being employed elsewhere. You would have to read it and see.

I can't possibly see why you would need to see a solicitor. You just need to focus on keeping all your receipts for things you buy, and make sure you have copies of all invoices you get paid on etc.

You have to keep all paperwork for 5 years just incase the I.R. decide to come and check up on you in the future.

Also, any savings accounts, bank accounts, gifts to charity etc all need to be taken into account when working out your profit / losses at the end of the tax year.

Mini Cash ISAs are a great way to legally hide money from the taxman. He doesn't need to be informed about any ISA that you have, and any interest accrued from that ISA is tax free.

In your first tax year, you might make a loss anyway. You are allowed to earn £4745 per tax year (this amount might have changed slightly now) before you get taxed. Over this amount, the first £2000 odd is taxed at 10%, then the next £29,000 odd is taxed at 22%, then everything above that is taxed at 40%. Then you would also get Class 4 NI contributions taken, based on your income. I think this is a futher 8% of your taxable income.

Basically a lot goes to Gordon Brown, which is why so many people (not me) do as much work as possible on the side for cash, and on the books earn about £10,000 which means an annual tax bill of around £1000.
 
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carpmaster said:
You are allowed to earn £4745 per tax year (this amount might have changed slightly now) before you get taxed. Over this amount, the first £2000 odd is taxed at 10%, then the next £29,000 odd is taxed at 22%, then everything above that is taxed at 40%. Then you would also get Class 4 NI contributions taken, based on your income. I think this is a futher 8% of your taxable income.
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His tax allowance will be used up by his paye job. All his self-employed profit will be taxed at 22% or 40% depending upon his overall level of income from all sources.
 
I would personally set up a separate account. You want to keep the business separate to your current account - you invest a certain amount of money in the business. Also its good for security and it looks more professional as you'll have your business name on it.

On the simplest of business accounts the charges are very small, only for things like handling cheques etc so its not worth trying to dodge them IMO - and yes I do have a business account. :)
 
Thanks all, really helpful advice.

Income tax - bah - looks like I'll be taxed at 40% then - because I earn over £29k in my daytime job.

So it looks like I'll pay income tax @ 40% and a bit extra for NICs on top of what I currently pay in my daytime job.

Another question - do I pay corporation tax as a sole trader? Or does this only apply to limited companies?

Also bank account - can't see much harm having a business account as long as the fees are low / non-existant. It would certainly help keep my finances separate. I'll pop in to Abbey today to pick up some leaflets. I take it everything relating to the business like bank charges count as expenses?
 
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