Are you going into business as a sole trader? Then there are several legal requirements you need to meet.
Some of these overlap with the legal obligations of other types of companies – especially those surrounding
workplace standards and behaviour. But some are the sole preserve of the sole trader.
But first, a word about terminology. The phrase "sole trader" may conjure up the image of a lone employee – perhaps a freelance teacher, electrician or artist. In fact, the "soleness" of the trader isn't part of its definition.
No, the defining feature of sole trading is that the
business is owned by one person who retains 100% of the profits that it generates. There are no partners or shareholders – but there can be employees.
Before we dive into the legal obligations of sole trading, let's take a look at the advantages and disadvantages of it as a business structure.
What are the pros and cons of working as a sole trader?
Pros
Cons
What's in a name?
The first thing you have to do when setting up as a sole trader is to pick a name. Simple? Well, yes and no.
There are some
restrictions on picking a company name. It can't be misleading, derivative or offensive.
Because you're a sole trader, you can't hoodwink customers by including "limited", "LLP", "plc" or any similar phrase in your business name. Likewise, you can't use puff words like "accredited" without permission from the
BEIS.
Your name can't be derivative – it mustn't step on the toes of an existing company or trademark.
Government guidelines are vague on notions of "offence", but you'll soon find out if your name is deemed insensitive or hurtful.
Getting started
One of your key obligations as a sole trader is to register for self-assessment with HMRC. This differs from partnerships and limited companies that register with Companies House.
By registering for self-assessment, you're committing yourself to completing an annual tax return. In order to do this, you'll need to keep accurate records of your income and expenditure throughout the financial year. Once your tax return is submitted, your tax bill must be paid by midnight on January 31.
When you start your sole-trading journey, you may find that free software like Excel or Google Sheets is enough to record what's coming in and going out. But as you grow and your transactions become more complex, you may want to look into accounting software.
There's a range of such software available, from Sage to QuickBooks, from Xero to Freshbooks.
As well as paying income tax, you may have to pay class 2 or 4 National Insurance contributions. If you don't know your number, you'll need to register.
Do I need to register for VAT?
You only need to register for VAT when your annual turnover exceeds £85,000. Once registered, you have to charge your customers VAT on your goods or services. You also have to submit a separate VAT return to HMRC.
Do I need any licences or permits?
This depends entirely on the nature of your business. It might be the case if you sell food or alcohol or play music on your company premises.
The best thing is to check the government's
licence finder and make sure.
I'm a construction worker
If you work in the construction industry, you'll need to register with HMRC for the Construction Industry Scheme (CIS). You can read more about this
here.
What are my legal obligations as an employer?
Some legal obligations for sole traders overlap with those of limited companies and partnerships. These would include essential activities like managing payroll and issuing contracts. Others are perhaps less obvious, and include:
Setting up as a sole trader is a relatively straightforward affair. It's important, however, to keep on top of your legal obligations so as not to run into trouble.
Are you looking for
commercial legal advice? At Milners Law, we have a range of expert solicitors who can help you with commercial and employment disputes. We pride ourselves on providing jargon-free advice so you know where you stand.
Interested? Then please don't hesitate to
contact us for a free, no-obligation consultation.
Pontefract Office
9A High Street
Upton, Pontefract
West Yorkshire
WF9 1HR
Darlington Office
Close Thornton Solicitors
31 Houndgate
Darlington
DL1 5RH
Authorised and regulated by the Solicitors Regulation Authority – Milners, SRA # 52317 | VAT number: 170144301
All Rights Reserved | Milners Solicitors
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
This is a paragraph. Writing in paragraphs lets visitors find what they are looking for quickly and easily.
Harrogate Office
11A Princes Square
Harrogate
North Yorkshire
HG1 1ND
01423 530 103
Darlington Office
Close Thornton Solicitors
31 Houndgate
Darlington
DL1 5RH
01325 466461
Pontefract Office
9A High Street
Upton, Pontefract
West Yorkshire
WF9 1HR
01977 644 864
Authorised and regulated by the SRA, SRA ID 52317
Get tips from our business and personal law legal experts. Delivered to your inbox each week.