There are a few traits that identify sole traders: you’re taxed as an individual (and don’t pay corporation tax), you have unlimited liability (your business isn’t considered a separate legal entity) and you have sole ownership over your business.
There are several reasons why the sole trader structure is the most popular option among businesses in the UK. It’s easy to set up—all you need to do is to register as self-employed with HMRC, choose a business name, and you’ll be all set to begin trading.
And if you change your mind sometime down the road—whether you decide to stop trading or to change to a limited company structure—the process of termination or transition remains fairly simple and straightforward. Unlike with limited companies, there’s no need to take additional steps such as applying to strike off your company.
You’ll also enjoy full control over your business, as there aren’t shareholders you’ll need to answer to. Sole traders also have fewer compliance requirements compared to limited company directors, which means that you’ll benefit from less paperwork, greater convenience and lower accounting fees.
When you're self-employed, you have unique financial obligations-especially when it comes to paying your taxes.
When you work for a larger corporation, or even a relatively small business, your company takes on a large percentage of handling your tax responsibilities for you.
As a freelancer or small business owner, you're on your own. You work as an independent contractor for each of the clients you work for-and they don't take taxes out of your check before they send it to you.
How then should you handle the responsibility of paying your taxes?
This guide will help you get started:
From starting your side business to going freelance full-time, becoming self-employed can feel scary and exciting all at once.
Before you jump right in, you need to ensure that you're staying on the right side of the law- and this begins with registering as self-employed with HMRC.
In doing so, you can be sure that you're paying the right amount of income tax and National Insurance Contributions, and thereby avoid paying unnecessary financial penalties.
Ready to get started? We've got all the information you need below:
If you're planning to start out on your own, one of the most important decisions you'll need to make is figuring out how you should structure your business.
As a freelancer, contractor or small business owner, there are three main types of legal structures you should consider:
It's a decision that requires careful consideration, and it's important that you seek advice from qualified professionals when you weigh out the pros and cons of each business structure. To begin with, you need to have a good grasp of the basics-and here's where our guide comes into the picture.
There are a few reasons why sole traders decide to make the transition.
Their profits may have grown to the point where it’s more tax efficient to trade as a limited company. They may decide it’s time to bring in shareholders or directors, or feel that their business could benefit from the increased credibility that a limited company structure brings.
Here’s what the process of transition involves: firstly, you need to decide if you’ll be the sole director. After which, you’ll need to notify HMRC of the change, select a business name, and register your limited company with Companies House.
Once the registration is complete, there are a few more items to cross off your checklist. You need to inform your stakeholders, set up a business bank account, set up your payroll, update your company details on your business documents and get your accounts sorted out.
While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.
Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.
Registering a company is a one off cost of £12 and done through Companies House. However, there are a few different ways that you can get this fee waved with other business services that you need.
We'll walk you through how to register your company for free and the perks that you'll get with each.
When you set up a limited company, you'll enjoy many advantages you don't get as a sole trader. Not only is it a tax-efficient way to run your business, it's also a great way to limit your personal liability and increase your credibility with customers. Additionally, it could open new avenues of work that wouldn't be open to you if you were operating as a sole trader, especially some contractor roles.
One of the disadvantages of running a limited company is that it involves a lot of paperwork, but with the help of this guide, we'll clear away the jargon and tell you exactly what you need.
If you're unsure about whether a limited company is right for you, check out our handy article comparing the differences between Limited companies and Sole Traders to see which business entity is right for you.
If you've got more important things to do than dealing with extra admin, you can always take advantage of one of our accountancy packages and we'll do all the forms and applications for you.
Being a limited company director comes with several legal responsibilities. In addition to your statutory duties, you’re also responsible for meeting your filing deadlines.
Send the FPS on or before your employees’ payday. The FPS must be submitted each time you pay your employee. This means that if your employee is paid weekly, you’ll need to make 52 submissions across the year.
You can change your company's year-end-otherwise known as the accounting reference date (ARD). Changes can be made to your current financial year or the year before.
Your company's financial year can be shortened as many times as you want, with the minimum duration you can shorten it by being one day. You can lengthen your company's financial year by up to 18 months once every five years. If other conditions apply, such as if your company is in administration, you'll be able to lengthen your financial year more often.
As a limited company director, there are several important deadlines you need to be aware of. These are:
As a contractor running your own limited company, you need to be aware of the following deadlines:
Speak to one of our accountants on a free 30 minute accounting consultation.