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Sole Traders
A sole trader is a self-employed person who owns and runs their own business as an individual. A sole trader business doesn’t have any legal identity separate to its owner, leading many to say that as a sole trader you are the business.
Personal Responsibility
Sole traders take a financial risk during startup just like other businesses. They come up with individual capital contributions for the business. Sole traders have to find the extra funds required in cases where the business needs extra income. The owner is legally bound to pay the creditors at the end of a fiscal year even if the business has not generated sufficient income to cover its debts. Similarly, the sole trader is answerable to the court in case the business faces criminal charges. The trader will serve whatever sentence the court passes.
Tax Returns
Submitting your Personal Tax Return – this is your principal responsibility as a sole trader which will need to be completed on time, in advance of the 31st January each year. It is a form which you can complete yourself, however, it is recommended to get an accountant to do this for you in order to ensure it is completed correctly and you are noting and claiming the correct income and expenses.
Value-Added Tax
Sole traders may or may not be registered for VAT. You will be required to register for VAT if you have a taxable turnover about the VAT threshold, which is currently £85,000. However, you can also voluntarily register for VAT if you turnover is below the threshold.
When sole traders register for VAT, they become responsible for:
- Charging VAT on the goods and services sold to customers
- Paying VAT on business purchases
- Submitting VAT Returns
- Keeping VAT records and a VAT account.
Business Operations and workings
Operating as a sole trader doesn’t have the same legal complexity as running a limited company, but you need to make sure you understand some key issues. In this section we look at claiming the correct Expenses, explaining your Personal Tax and NIC obligations, considering some helpful Tax Planning and talking you through VAT should you reach the threshold. We also introduce you to some key Business Partners that Brookson believes can contribute to your success.