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Home Corporate Services Top Tips for Starting Your Own Business Register as a Sole Trader (Self-Employed)

Register as a Sole Trader (Self-Employed)

Register as a sole trader (self-employed)

Start Your Own Business

More and more people are closing down their traditional partnerships and sole proprietors businesses, and starting a new or the same business as private companies limited by shares. However, which business structure is the best for you? You should think carefully about which structure suits your particular circumstances before making a decision. Choosing the wrong structure could expose you to unnecessary costs and risks, while failure to address certain practical issues may result in you falling out with your business partners or associates.

Having said that, the status of sole trader suits many professions where starting up does not require major investment, and where a skill - such as carpentry, bricklaying or freelance services - is just as important as business acumen. It will not stop you from employing people when you start to get busy, but it will allow you to keep a tight grip on your business and to run it as you wish.

Today, there are several business entity options available for entrepreneurs. Like anything else, each of them has advantages and drawbacks:

Starting business as a self employed: most people who start in business do so as sole traders. They work on their own. They alone receive the income and are liable for any debts. However, with that comes danger.

You are liable for any debts that you incur, because the business is, quite simply, you. The financial costs of starting up are minimised by working alone from home. It can be a lonely life but, instead of colleagues, you have customers.

Business people who work in the same town often join organisations such as the British Chambers of Commerce or networking groups such as Business Network International where they meet other people who are in a very similar situation to themselves. Talking your problems over with other people in business, provided that they are not competitors, can help.

Being a sole trader is the simplest way to get started in business (although not necessarily the best, you need to get professional advice before taking the plunge). Once you have informed the government agencies of your intentions to go self-employed, you can start trading right away (subject to any specific licences you might require in your line of work).

As a sole trader, you can quickly adapt to changes in your business with minimal bureaucratic changes required and you have complete control over your business and accounting affairs. However, a sole trader is also ultimately responsible for any liabilities should anything go wrong. If you start working for yourself, you must register with the Inland Revenue as self-employed, even if you already send in a tax return. You should register the moment you start out as a sole trader; otherwise, you could incur a financial penalty. There are some exceptions and special rules for particular industries, like the construction industry.

When you start working for yourself, you will need to register as self-employed with the Inland Revenue. Once you registered as self-employed, you will be a self-assessment taxpayer. You can trade under your own name, e.g. John Doe, or use another business name, e.g. AAA Business Marketing (do not forget to check that no one else is using the name).

Even as a sole trader you should have a separate bank account. This will make it easier for you to do your tax return, and keep track of how much money your business actually has.

Keep accurate accountancy records: essentially, your business income is counted alongside your existing personal income, so the accounting side of your business will be very straightforward. As the name suggests, you will be personally liable for any debts you incur in the running of your business, which you would not be under the limited company route. In terms of accounting, you will need to submit an annual self assessment form to the Inland Revenue and keep accurate and up-to-date records of all business transactions and accounts.

You will also be pay income tax on all profits and pay national insurance contributions on those profits. Losses can be offset against tax on other income. In the April after your business starts, the Inland Revenue will send you a self-assessment tax return to fill in. The Revenue will also use the return to assess any profit-related (Class 4) NI contributions you may need to pay.

Income tax is operated under a "self assessment" basis which means that you tell the Inland Revenue what your taxable profit is and they reserve the right (normally within one year of the last date for submitting the Return) to make inquiries. This could involve asking for all your accounting records and supporting vouchers, bank statements (business and private) etc. You are expected therefore to keep sufficient records to support your Tax Return.

Your income tax is calculated and due by 31 January following the end of the tax year. By then, you will already have made payments on account half-yearly by 31 January and 31 July. These will have been based on your profit for the preceding tax year. The actual sum due is paid after deducting the payments on account already made. Sometimes your payments on account will be too much in which case you will receive interest called a supplement and a refund.

To be able to fill out a self-assessment tax return correctly, you need to keep a clear record of all your sales and purchases. This includes all invoices you have issued and received, plus any receipts. You will also need to keep a record of money you have personally taken out of the business, such as when you withdraw profits, and of course business bank statements.

All of this paperwork will help you work out what profit your business is making. It can be as simple as revenue in, minus expenses out… although some purchases may not be counted as genuine business expenses. Whatever is left is your profit and what you will be taxed on. There are some allowances you can use to reduce the tax impact such as capital allowances on any equipment you buy.

If you're self-employed you must keep business records such as your accounts, evidence of tax that's been paid and other records relating to your income and outgoings. You will need these to help you complete your tax return or to answer any questions from HM Revenue & Customs (HMRC) about a return you've completed.

You'll need to keep your business records separate from and for longer than your personal records. Most businesses find that it helps to have a separate business bank account. You must keep records so that you can fill in the return fully and accurately, your basic business records must include:

a) The records of all your sales and takings;
b) The records of all your purchases and expenses.

You or your accountant use these records to create a profit and loss account - which shows the sales income you've received and the expenses you've paid, and what profit/loss you've actually made.

Self assessment deadlines: there are four key deadlines for sending in your tax return and paying any tax due:

31 October - this is the deadline for sending in the majority of paper tax returns;
31 January - the deadline for sending in your tax return online, and some paper tax returns where the return cannot be filed online;
31 January - this is the payment deadline for what you owe for the previous tax year, and if payments towards the current year's tax bill (called 'payments on account') are due;
31 July - the deadline for your second payment on account - if one is due.
Penalties and surcharges may apply if you miss these deadlines.

Self-Employed Advantages

Self-Employed Advantages

The total control of business by the owner & the easiest & least expensive form of ownership to organise, plus fewer statutory controls. The lower National Insurance costs, tax payable is income tax paid in two instalments, plus the profit can be withdrawn at any time without PAYE problems. As the owner, all profit belongs to the sole trader, & your business affairs are private - competitors cannot see what you are earning, so will know less about how the business works & how it succeeds.

Self-Employed Disadvantages

Self-Employed Disadvantages

The weak structure, the sole-trader is liable for all debts of the business. You are personally responsible for keeping your financial records in order and filling in a tax assessment. May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans, fewer tax reliefs and benefits are available. There are certain businesses that will not use sole-traders, particularly if you are a contractor.

This is not a suitable way to trade if you want to hire employees or your business grows so big that there's a long way to fall if things go wrong. Remember, you are liable for everything to do with the business.

Being a sole trader will suit a large number of small business people, however it is not always the best route which is why we suggest discussing your choices with an accountant or other adviser. The limited company route limits the personal liability of its directors if something goes wrong, whereas the sole trader is ultimately personally liable for any losses the business makes, of if you are forced into bankruptcy.

In addition, in some areas of business, having a limited company set-up will enhance prestige and provide a more professional appearance in certain industries. Before you start trading, you will have to decide under which structure you intend to trade. This will be dependent on the type of business you are running and how you intend to develop in the future.

Everyone starting out on their own needs to. It is quick, it is painless and it can definitely save you time and money. You must do this as soon as you start or within the first three months, even if you already use a self assessment tax return. There are penalties for not registering, so fill in the form at the back of this leaflet and send it to us right away.

Do you need an accountant? Yes. An accountant will prepare your accounts in a way that is acceptable to the taxman, and will ensure that you are charged the right amount of tax. However, do not wait until the end of your first year of trading before finding one. An accountant can give you valuable help in setting up your bookkeeping system; if you keep your records in the form suggested by your accountant it would make his job in preparing your accounts easier and therefore cheaper. He will also be able to help you to prepare budgets and cash flow forecasts, which your bank manager will want to see.

Coddan Ltd assists self-employed persons with the self-assessment tax return they may or may not be VAT registered and may even have employees who will need to have the correct taxes and contributions calculated and statutory returns made to the HM Revenue & Customs.

Coddan Ltd has come together to bring the self-employed a solution whereby they have their accounts maintained on a quarterly basis ensuring that accounts are consistent and up-to-date, no supplier / customer payments are left outstanding, VAT returns are filled, for the VAT registered and for sole traders with employees, the correct taxes are deducted and all statutory returns are filled.

Incorporate Your Own Business: Register Your Business as a Partnership

Incorporate Your Own Business

You could set up in business with a colleague or friend. Perhaps you each have different skills to bring to the enterprise. One may be a good sales person and negotiator while another has the ability to provide a service, like mending guitars, writing websites, compiling accounts, analysing markets or sculpting. When you go into business with someone else, this is usually known as a 'partnership'.

Everyone might own an equal share or some may have a larger proportion of the business than others. In a partnership, you are liable for the debts of the business in proportion to how much of it is yours and your income may be of a similar proportion.

Unlike other business formats, partnerships (and sole traders) can start trading straight away, although certain types of businesses may need a licence to trade. If trading under a name other than that of the owners, must display names of owners and an address, for each, at which documents can be served.

Behind sole-traders, a partnership is the second most popular type of business and is more commonly associated with professional services such as accountants, solicitors and doctors. It is also common in partnerships for each partner to specialise in a specific area of the business. For example, in an accountancy service, one partner may specialise in bookkeeping, another partner may specialise in financial advice, and so on.

You have to be aware that because any decisions and actions are dependent on the other partners agreeing, certain conflicts may arise from time to time. Such conflicts have led to partnerships failing and so it is important that some control can be maintained by compiling a 'partnership agreement' prior to starting the business. This agreement will be outlined later in the article.

Register as the General Partnership

The general partnership, which is the scenario outlined above and is subject to the Partnership Act, 1890. Full partnerships, as outlined above, have between two and twenty partners, but more commonly, the number of partners in a full partnership lies between two and four inclusive.

An arrangement in which two or more individuals or other persons (such as a company and an individual) conduct business as partners, whether officially or not. In terms of asset protection, general partnerships can be even worse than sole proprietorships. Anything that one partner does affect all of the partners, because each partner of the general partnership is personally responsible for all obligations of the partnership deals. Thus, each general partner's exposure to risk is increased by a factor equal to the number of general partners in the business.

Incorporate as a Limited Partnership

The limited partnership, which is subject to the Limited Partnership Act 1907. Limited partnerships they are very rare today and account for less than 1% of all partnerships in the UK. A limited partnership is formed when one or more of the partners invest capital into the business but do not participate in running and managing the business. These partners therefore have limited liability as they can only lose the amount of money that they initially invested into the business.

A limited partnership is an association of one or more general partners together with one or more limited partners to conduct business for profit as co-owners. The most important feature of a limited partnership is that the limited partner enjoys limited liability as long as s/he does not participate in the control of the partnership business. The general partners of the limited partnership are the ones who are responsible for the obligations of the limited partnership.

In a limited partnership, it is the general partner who remains liable for the debts and obligations of the entity. For larger risk exposure, a company (corporation) may be formed to serve as the general partner. A corporate general partner is protected from direct attack by a judgement creditor because the ultimate liability for the debts and obligations rests with the shareholders.

By spreading share ownership, individual exposure is considerably reduced. Even without a corporate general partner, risk can be spread by distribution of limited partnership shares. If a judgement creditor obtains a charging order against one partner, the order goes to that partner's share in distributions from the partnership, and not to the entire business. Wit us, you can establish a limited partnership in Delaware, create a limited partnership in Scotland, England, Wales and in BVI.

Start-Up as a Limited Liability Partnership (LLP)

An LLP is similar in some ways to a limited partnership, except that the individual members have lower liabilities to any debts which may arise from running the business. There are more administrative duties involved compared to the partnership business structure. In fact, an LLP is more similar to operating a limited company. In terms of liability, the limited liability partnership is itself liable for debts run up in running the business, rather that the individual members of the LLP. As a result, limited liability partnerships are only recommended for profit running businesses.

An LLP may be formed by two or more persons (individuals or companies) to carry-on a trade or business. To form an LLP, the partners have to file an incorporation document at Companies House. The owners and managers of an LLP are the same. The management structure and relationship between the partners are a matter for agreement between them and may be recorded in a separate LLP agreement, similar to a partnership agreement.

All profits in a limited liability partnership (LLP) are split between the members. The tax liability falls on the individual members, not the LLP itself. Most members are likely to be self-employed, so all income should be declared via self-assessment. If an LLP member is another business, they will be liable to pay corporation tax on any income they receive from the limited liability partnership.

As with other company structures, if the LLP is expecting to generate income of £78,000 or more, they should register for VAT. If they have employees, the LLP should set up a PAYE system to collect income tax and National Insurance contributions.

A UK LLP is not itself liable to tax in the UK as the LLP tax provisions identify other persons (i.e. the members) as the persons who are to be taxed. Accordingly, for the purposes of the Double Taxation Agreements (DTAs) the LLP is not regarded as being resident in the UK and cannot itself therefore claim relief from foreign taxes under such agreements. As is now the case with ordinary and limited partnerships, the members must make the claim.

Assuming they are UK residents in accordance with the provisions of the relevant DTA the members of an LLP are entitled to relief for any withholding tax on overseas dividends. Normally a DTA provides for withholding tax of a maximum of 15% to be deducted and relief for that tax given. Where a partner is an individual then no relief is due in respect of the taxes paid (the underlying taxes) on the profits out of which the dividend is paid.

In the very narrow circumstances where the LLP is not treated as transparent, but instead as a body corporate for tax purposes (such as when the LLP is in liquidation or being wound up in circumstances where transparency cannot be retained), the HM Revenue & Customs take the view that the LLP can itself claim relief for foreign taxes, including if appropriate underlying tax.

LLP Registration Advantages

LLP Registration Advantages

There is no personal liability on a member for the LLP's debts and contracts, no joint and several liabilities for the negligence of any member. As a separate legal entity, LLP's may own property, sue, and be sued in LLP's name; members' liability to contribute in a winding-up is limited to the amount they agree to contribute in the event of a winding-up as recorded in the LLP agreement. LLPs are not a separate entity for income tax purposes, profits and losses are passed through directly to the partners.

LLP Start-Up Disadvantages

LLP Start-Up Disadvantages

Problems with partner(s) as the result of misunderstandings, different goals, etc., can weaken or destroy the partnership. Have to apply the same tests to its members, which apply to directors for fraudulent and wrongful trading under the Insolvency Act. Disclosure of information (in particular accounts and an auditors' report) must be filed with the Registrar of Companies and becomes public.

Money and property contributed to the LLP becomes owned by the partnership assets, unless otherwise stated and the contributor is not entitled to its return except as stated in the partnership agreements.

We provide different packages with the different options depending on your business needs; each package offers the complete formation of a limited liability partnership, which is usually ready to commence trading within four to six days. Our packages offer the perfect results for those people who are taking the first step into the business or whose budget won't stretch to bespoke business solutions, there are no dumbfounds and no hidden charges, - what you see is what you pay! We can also assist clients with the special needs or requirements, we could make a tailor made package that would suit your personal needs and wants.

In the case if you would like to register a limited liability partnership in the United Kingdom and you are not UK resident or British citizen, this would not have been a problem if you will appoint us as your LLP incorporation agent. A party to a contract who is not domiciled in England or Wales usually appoints a process agent. We, as your LLP registration agent will act as the agent for the acceptance of service of incorporation process: we can register an LLP in London, incorporate an LLP in Liverpool, form an LLP in Manchester, or in create an LLP in Northern Ireland (in Belfast), we can also form an LLP in Delaware.

You will not be left on your own once you have started up an LLP, we still are here to help you with any problems that you may face as you establish and grow your business. Our advisers will answer any questions you may have and explain what you, or we, might do in your current circumstances.

If necessary, you may return to us for further help as matters progress. Our team of full-time professional business advisers can guide you through the essential steps to launching your own business. Please, take a note that we can have meetings with current of positional customers by appointment only.