The simplest way to start a business is to set up as a sole trader. There is minimal paperwork to take care of, and you don’t have to pay any formation costs.
However, you do need to formally register as self employed with HMRC, and assume responsibility to pay your own income tax and National Insurance liabilities.
Here are the steps you must take to get started as a sole trader:
Pick a business name
What are you going to call your business? For many new entrepreneurs, this is the most exciting start-up task and one that lots of time is spent on!
Some people simply trade under their own name, or say they are Your Name trading as Business Name. Don’t forget to check that no-one else is using the name – a quick Google search will help you. There’s no register of business names used by self-employed people, but you can check the Companies House register of limited companies.
Tell HMRC that you are becoming self employed
You must notify HMRC within 3 months of becoming self-employed. You can do this via any of the following ways:
a) Register online via HMRC’s online form here.
b) Call the Newly Self Employed Helpline on 0845 915 4515.
c) If you want to register via post, fill in Form CWF1 here (PDF).
Don’t forget though, or you will be fined £100.
Once you become self-employed you will pay tax each year by filling out a tax return and self-assessing how much you owe. A smart move is to keep tax money aside in a separate account from day one – then you will never find yourself scrabbling to meet a payment. Your accountant will advise how much you can expect to pay.
You will also be responsible for paying your own Class 2 National Insurance contributions, currently £2.50 a week (2011/12 tax year). You will pay extra Class 4 contributions on profits you make over £7,225 (2011/12 tax year). Again, consult your accountant for advice specific to you.
Register for VAT
If you turnover more than £73,000 (from 1/4/2011) in a rolling 12 month period you will be liable to pay VAT, even as a self-employed person. So keep an eye on how well your new business is doing. As soon as you do pass the limit, you have 30 days to register with HMRC.
With some types of business, you need to get a licence before you can start working. For example if you want to set up as a taxi driver you will need to apply for a licence from your local authority.
It’s the same for many other types of work, including being a child minder running a restaurant or pub, or being a market trader. And to get a licence, you will typically have to do some specific training and gain relevant qualifications. You may also have to go through an inspection to ensure your business is shipshape and legal.
- What is a sole trader?
- 5 things you must do when you go self employed
- Sole trader self assessment tax guide
- Becoming self employed – things to consider
Duport also offers a Sole Trader Package which will help you get up and running as a sole trader in a matter of hours (including the forms you need to register with HMRC).