Things you Should Know About Being a Sole Trader
Opening your own business can be very rewarding in so many ways. You have the time to do the things you need to without clocking in on someone else’s timeline. Making executive decisions about the ideas you have without waiting for someone else’s approval can quickly be executed. All your hard-earned money belongs to you once you have paid your overheads and your tax returns.
The best part about operating as a sole trader is that your tax returns can result in a lucrative payout when you need to initially file your returns to get back more than you bargained for. What is a sole trader? Well, let’s take a look:
Sole trader responsibilities
As a sole trader, many of the onus falls on you to make sure that the HMRC are aware of you trading as a small business or a sole trader. People who work for themselves don’t always declare this and get shut down and face hefty fines with the HMRC. You are also responsible for the invoices and your business administration, making sure your paperwork for the financial year adds up in your returns. You are entirely responsible for each transaction and client’s outcome firsthand, so it is essential to see that the amounts of money you are taking line up with the invoices you have issued. The tax that you will be paying can still be paid over as personal tax because you are still seen as self-employed even though you have a business registered with the HMRC. Your business does not have to be in a fixed building or even have selected business details when you register, but you do need to register it nonetheless. Unlike a limited company, you will be held entirely liable for the entire business’s financial reputation, your business’s plans, and your help. There you must have an accounting system that complements your business’s objectives and allows you to remain on the right side of the law.
There are no costs involved when you set up as a sole proprietor or setting up a small business. You can start small because there are no cut off times for name registration or tax paperwork. You don’t have to be concerned about overheads either because you could efficiently work from the comfort of your home. The name of your business isn’t a priority like it would be for a limited company. You can use your name if you don’t want to register for a new one and don’t have to worry about the Company’s House to do that as long as you have registered yourself as a sole trader with the HMRC independently. You don’t have to worry about the finer details because you’ll work by yourself and on your own time.
There are a few things that might make being a sole trader or being self-employed seem like a risk:
● No insurance
You will no longer be able to claim health benefits the way you would if you were working for a boss. Your health insurance will need to be paid over to a separate entity so that you have a fall back in an emergency.
Working for yourself can be exhausting if you do not have a solid plan and time table to stick to your goals. Many self-employed people end up working far beyond their regular working hours because they need to find clients independently and need to do all fine-tuning by themselves.
You’re going to have to find your own money to invest in the business if you cannot get a bank approved loan to assist you. Getting other investors to give you cash advances can also be risky if you do not have any way of paying the money back on time. Anything can happen to leave you entirely liable for the costs of the setbacks.
Unless you appoint an accountant to assist you with your finances, you might find that saving money for a rainy day could be a problem. Many sole proprietors struggle to save money because they constantly need to pay for things out of their own pockets, so try and keep an accountant on speed dial.
● Tax Mismanagement
A sole proprietorship is required to fill in their tax returns on time without withholding any information. Being unable to manage your finances and taxes could lead to failure and significant fines from HMRC. Asset forfeiture is one of the downsides of this because you might not have the money to pay your outstanding taxes and would have to sell your property to make up for the lost funds.