Small businesses are booming in the UK. Of private sector businesses in 2016, 99.3% were small business, while 99.9% were SMEs (small or medium-sized). These SMEs employed 15.7 million people. If you’re thinking about starting your own business, now is the perfect time, 76% of business in 2016 didn’t have any employees besides the owner.
The most common type of business in the UK is a sole proprietorship, also known as a sole trader, accounting for 60% of total business registered in the UK. This type of business is typically run by an individual who may have a very-small amount of employees. Starting a sole trader business can involve some personal financial risk, since sole traders must pay their own debts if the business fails. However, if you’re interested in starting-up a relatively low-cost business, you shouldn’t worry too much about building up debt.
Setting up a sole trader is quick, easy, and doesn’t involve any costs. Even though anyone can become a sole trader, you may be required to obtain a licence or permit from your local authority, depending on the type of business you’d like to start, so it’s best to seek advice from a professional if you’re not sure. Once you’ve made your decision to start a company, there are a couple of easy steps to follow:
Select a name address for your company
You can trade under your own name, or choose another name for your business. Your name and business name must be included on any office paperwork, i.e. invoices and letters. Names must not include “Ltd”, “LLP”, “public limited company” or “limited”. They cannot be offensive or be the same as an existing trade mark. Unless you have permission, your name cannot suggest any sort of connection with government or local authorities. If you’d like to be the only business allowed to use a certain name, you’ll have to register as a trade mark.
Register your new business with HMRC
Register with the HM Revenue & Customs (HMRC) as soon as possible, otherwise you can be fined for 100% of your taxes, plus the amount of taxes unpaid. You’ll have to do this even if you’re only running your sole trader business casually or part-time. To register, you can use the HMRC online service, or call the HMRC “Newly Self-Employed Helpline” on 0300 200 3504. You’ll have to provide your name, date of birth, address, phone number, National Insurance number, start date, name, type of business, and whether you’ll be working by yourself or with a partner. With the above information in hand, the process is quick and easy.
Sign-up for Self-Assessment taxes
As a sole trader you’ll need to file a tax return every year. As part of your responsibilities, you’ll need to keep records of your business’s sales and expenses. There are two main classes of taxes you usually have to pay if you’re self-employed. For profits over £6,025 per year, you pay Class 2 which is £2.85 a week. If you profit over £8,164 a year, you’ll have to pay 9% on profits between £8,164 and £45,000, or 2% on profits over £45,000. Also, if your turnover is over £83,000 year, you must register for VAT (Value Added Tax). For those who are VAT-registered, you can reclaim the VAT back from your supplies
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