What are some examples of sole traders? Here are six jobs that are ideal for anybody who wants to set up on their own offering a personal service, whether it’s fitness training, gardening, hairdressing, private catering, taking photographs or even walking other people’s dogs.

What surprising is how lucrative it can be.

Examples of sole traders – personal trainer

What kind of people make the best personal trainers?

Personal trainers are those fit looking people you see in gyms offering personalised exercise and nutrition plans. Becoming a personal trainer can be a great choice if you’re sporty and want to go into business for yourself as a sole trader.

Of course, you must have a passion for fitness, but many people become personal trainers as a second career or a side hustle or they have a supportive partner, who take the pressure on having to earn a high wage.

The people who do best as self-employed personal trainers are those who combine their passion for fitness with business acumen.

However, if you want to make it as a personal trainer, you need to be prepared to work long hours – the working day can start as early as 6am, be responsible for getting your own initial and ongoing qualifications, do your own marketing and manage your client diary.

Do I need a qualification to become a personal trainer?

The answer is yes. The minimum you need is a Level 3 Certificate in Personal Training and its prerequisite, a Level 2 Certificate in Gym Instruction. The good news is that you can be certificated in a number of ways, including full-time and part-time in person. Puregym Personal Training Academy offers an online-only 14-week course offering both certificates at the end.

Once you’ve got your certificate, you can start drumming up clients.

The next stage is a Level 3 certificate, which include sections on nutrition and running your own business.

Ross Mitchell, who trains personal trainers for PT training company Future Fit, says: “I always advise people to get their Level 3 because after that, the sky’s the limit.”

A Level 4 qualification includes working with people who have medical conditions such as diabetes and means you can be referred to by medical practitioners.

Do I need to be based in a gym?

Not necessarily. Some gym chains such as Puregym encourage freelance personal trainers to rent gym space, as do some independent gyms. Gyms will pay around £30-£35 per class if you’re a freelancer taking a fitness session.

Mitchell says: “My advice would be to work in a gym to start with. Working onsite will help you better understand people,and also help you understand where you want to go in the fitness industry.

“Being a personal trainer isn’t just about fitness. It’s about understanding your client’s personality, their struggles. Not everybody is as enthused about fitness as a newly qualified personal trainer.”

Or you could specialise in outdoor training, offering sessions in local parks. But if you go fully mobile straight away, you won’t have any clients, marketing or visibility. And even if you just set up in the park offering workouts, you may still have to pay your local council.

Other places where you can work as a self-employed personal trainer include:

• Office-based inhouse gyms
• Holiday resorts and hotels
• Cruise ships

Should I specialise in one type of fitness?

The short answer is yes, says Ross Mitchell, who compares having a fitness speciality to being a specialist surgeon as opposed to a general doctor.

Fitness specialisms that are currently popular include:

• Spinning
• YogaPilates
• Les Mills
• Hyrox
• F45

How much does it cost to become a personal trainer?

The National Register of Personal Trainers says that courses can cost anywhere from around £900 through to £5,000 for an intensive six-week course. To gain a full Level 3 qualification as a personal trainer, you can expect to spend up to around £2,500 as an average course price.

Do I need personal trainer insurance?

Specialist personal trainer business insurance protects you against potentially costly claims from clients if something goes wrong during a session. It also covers you if your equipment is lost, damaged or stolen, if you injure yourself when training or if an employee gets injured while working for you.

It’s so important that proof of specialist insurance is required by most gyms and sports centres before they allow you to work at their facility.

What types of insurance are required by law?

If you train with clients having public liability insurance is essential. This protects your legal liability if a claim is made against you for injury to another person or property damage. For example, you may need to claim if a client injures themselves during a session and holds you responsible or if you accidentally damage a facility you’re training at.

Professional indemnity insurance is also essential if you train clients – this covers you if a client injures themselves as a result of an exercise you’ve instructed and makes a claim against you.

It’s not just injury to your clients you should consider.

If you injure yourself while training, then you need personal accident insurance to cover potential physiotherapy or dental treatment costs. When you take out personal accident insurance, you can also get optional loss of earnings cover for up to 52 weeks in order to support you financially if your injuries mean you’re unable to work.

Another vital requirement of personal trainer insurance is equipment cover. If you transport your equipment to and from a fitness centre or a client’s home, you need equipment cover to protect it against loss, theft and damage. For instance, someone could break into your car and steal your equipment, or it could be damaged by an inexperienced client during a session. If these things happen and you don’t have equipment cover, you would have to pay for repairs or replacements out of your own pocket.

How much will I earn?

The average hourly rate charged by personal trainers is £30-£35, according to Puregym. In your first year, expect to earn as little as £10,000-£16,000; rising to £16,000-£20,000 in year two. fully fledged trainers earning anything between £25,000 and £60,000.

Some trainers who work with elite amateur athletes can charge up to £100 per hour for specialist training. Be warned though, if you’re thinking it would be cool to coach the next Dina Asher-Smith or Katarina Johnson-Thompson, famous athletes may pay you nothing – thinking it’s worth your while being associated with your brand for other lesser clients.

Ross Mitchell of Future Fit says that the attrition rate for people becoming personal trainers is high, mainly because people do not treat it like a business.

“Unfortunately, this is not Field of Dreams. If you build it, they will not come,” he says. “You have to put in a lot of effort.”

However, all it takes is for one of your workouts to go viral on social and you could become the next Joe Wickes.

>See also: What is a sole trader? A small business guide

Small Business Pro, our all-in-one solution, can save you time and money as well as offering peer support and the chance to win a monthly £2,500 grant. It will also help with the heavy lifting of managing customers, taking payments, insurance, finance and HR, plus you’ll get a host of personal wellbeing benefits.

You can find out more about Small Business Pro here.

Examples of sole traders – gardener

We know that anything outdoors is healthy. And, during the summer months, what could be better to be outside all day working in nature? And, for those of you who enjoy gardening, becoming a gardener is relatively low cost.

Do I need a qualification to become a gardener?

Mark Soanes of Urban Paradise spent 15 years in media working as an operational manager for companies including Virgin and Universal before being made redundant in 2016.

A keen amateur gardener, he decided to become a garden designer and landscape manager, doing a one-and-a-half year degree in garden design at the British Academy of Garden Design.

Soanes recommends taking a course before starting out as a self-employed gardener, such as those offered by the Royal Horticultural Society (RHS).

Soanes said: “A lot of people undervalue gardeners because there’s a lot to learn. It’s a lifetime learning process. You’re constantly learning by taking as many courses as you can, but everybody has to start somewhere.”

You can always join a gardening firm

Another route to becoming a self-employed gardener would be to join a bigger gardening firm by becoming a junior gardener. That way, you don’t have the outlay of setting up on your own and you should be partnered with another, experienced gardener who you can watch and learn from.

How much does it cost to set up as a gardener?

According to Fantastic Gardeners, would-be self-employed gardeners should budget for anything between £7,000 and £10,000 in set-up costs, including buying a van to transport tools, buying proper equipment and professional indemnity insurance.

What are my setting up costs?

• Tools – lawnmower, strimmer and hedge trimmer are essentials, as well as a spade, fork, shears, secateurs, loppers, lawnmower (best to have a battery-powered one), ladder, leaf blower, hedge trimmer, wheelbarrow, safety glasses, hosepipe, spray applicator, etc. Aim to spend at least £1,500 on gardening equipment.
• Van – for transporting tools and equipment
• Licences – you need a licence to operate a chainsaw, use pesticides or carry waste
• Website build and maintenance
• Uniform
• Bookkeeping software
• Professional indemnity insurance – costs as little as £70 a year

Where do I find clients?

By registering with the Gardeners Guild, you can list the services you offer. Full membership is currently just £45 a year (plus £10 initial registration fee). However, you must have at least one regulated horticultural qualification at Level 2 or above before being accepted for membership.

How much will I earn?

Professional gardeners work in blocks of three to four hours – otherwise it’s just not cost-effective factoring in travelling to and from jobs.

Gardeners can charge between £20-£50 an hour or a minimum £150 per day. This equates to anything between £15,000 and £70,000 a year, depending on how sophisticated a service you offer.

And, contrary to popular opinion, gardening and landscaping is a year-round job – there’s always something to be getting on with.

>See also: Can I switch a limited company to sole trader?

Examples of sole traders – hairdresser

One of the great things about being self-employed as a hairdresser is that you can grow into the role (sorry!). You can start out as a junior stylist and then work your way up, either working for a big city-centre salon or opening your own premises.

Or you can go completely mobile, visiting clients at home, while renting a chair in a salon for clients to visit you.

What qualifications do I need to be a hairdresser?

You can study hairdressing at college (such as a Level 2 or Level 3 Diploma or a T-level in Hairdressing, Barbering and Beauty Therapy – England only, from September 2023).

Or you could do an apprenticeship in a salon with a view to becoming a trainee hairdresser in a salon and learn on the job. Your employer will provide you with a certificate after you complete your apprenticeship. There are different levels of apprenticeship that will qualify you for different levels of National Vocational Qualification (NVQ) diplomas.

• Intermediate hairdressing apprenticeship (haircutting, shampooing, basic colouring, customer service) – qualifies for NVQ Level 2
• Advanced Apprenticeship (creative hairstyling, advanced colour, salon management) – qualifies for NVQ Level 3

Renting a chair

One of the benefits of being a self-employed hairdresser is that you can either visit clients in their homes or have them come to your home.

Another option is what’s called “renting a chair” where you rent a chair in a salon, either paying the owner a fixed daily/weekly fee or a percentage of takings when you are there. The standard percentage is around 40 per cent.

What equipment will I need?

• Scissors, combs, electric clippers
• Hair straighteners/curlers/wavers
• Hairdryer
• Protective floor covering
• Protective cape for client to wear
• Towels
• Sectioning clips
• Hair products (shampoos, conditioners/styling products/colours)
  What kind of insurance will I need to become a hairdresser?

What kind of insurance do I need?

Professional Beauty Direct offers self-employed hairdressing insurance starting at £42.50 a year. The policy is designed for self-employed mobile hair stylists and hairdressers, who either work from their home or visit clients, or rent a chair in a salon. The policy offers liability cover of up to £6m. You can add equipment cover as an additional cost.

The insurance package, which offers liability cover of up to £6m, includes:

Public liability insurance covers any injuries or accidents that may occur in your home or at your work premises, such as a customer stabbing themselves with your scissors.

Product liability insurance covers the products you sell to clients following a treatment, e.g. the products you used on them or aftercare products. This includes any allergic reaction to the product.

Treatment liability insurance covers claims made against you by a client if they experience illness or injury as a result of you providing a treatment

How much will I earn?

The average salary for a hairdresser is between £14,000 per year for a junior hairdresser and £30,000 per annum for a highly experienced hairdresser.

Examples of sole traders – private chef

What does a private chef do?

If you’ve ever watched MasterChef on TV, you will have noticed that many of its contestants go on to set up their own businesses as private chefs. And many of the MasterChef professionals are already working as a private chef.

Setting up as a private chef could mean you cater for one-off dinner parties or you’re called in to cater for glamorous country house weekends or even working for the rich and famous on yachts as an onboard cook.

However, be prepared for hard work: private chefs can work up to six days a week, covering everything from breakfast through to dinner, and then there’s the wiping down and washing up, which means up to 12-hour days.

Broadly speaking a private chef:

• Plans menus
• Shops for ingredients
• Prepares, cooks and often serves meals
• Clears away and cleans the kitchen

Do I need a qualification to become a private chef?

Many chefs go to a cookery school such as Ballymaloe, Le Cordon Bleu or Leiths to formally train and then start as a cook to gain experience.

Or they may start in a kitchen restaurant working their way up to sous chef before setting up on their own.

But there’s nothing to stop you from just going into business for yourself, if you’re passionate about your own food.

Gary Maclean, MasterChef winner and the national chef of Scotland, says: “A lot of people fall into it. The biggest draw is the freedom to develop your own food and do what you want. The chefs who go into it want to do their own thing without having a head chef over them. A lot of private chefs are enthusiasts who have never worked in a professional kitchen. My advice would be to give it a go but just start small.”

What skills do I need to be a private chef?

Maclean says that in addition to being able to cook, private chefs need to organised and good at planning a dinner party from start-to-finish.

“You need to be able to think on your feet,” he says, “as you never know what’s going to be thrown at you. It’s not as if you can reach for the store cupboard or the chiller, as you can in a professional kitchen.”

What equipment do I need as a private chef?

Maclean advises investing in your own kitchen equipment, as having top-quality tools really helps when it comes to producing and delivering a first-class dinner party. But the most important thing is to be passionate about what you’re doing, whether or not you’re already working in a professional kitchen and are offering dinner parties as a side hustle.

How much will I earn?

A live-out private chef can earn between £30,000 and £70,000 per annum. The average salary for a private chef is about £38,732 per year.

Examples of sole traders – photographer

What does a freelance photographer do?

In a way, we’ve all become photographers. All of us snap away on our iPhones to feed our Instagram accounts. If you’ve got a good eye, you might want to take things further and become a self-employed photographer.

There are plenty of niches you can specialise in as a freelance photographer:

• Event photography
• Fashion photography
• Food photography
• PR photography
• Product shots
• Property photography
• Social media images
• Sports photojournalism
• Stock photography
• Travel photography
• Wedding photography

Do I need qualifications to become a freelance photographer?

You’re not required to have formal qualifications, but certificates can reassure clients. In addition to studying photography at art school or university, organisations including the British Academy of Photography[TA1] , Royal Photographic Society and the British Institute of Professional Photographers all offer courses.

What equipment do I need to become a freelance photographer?

• Camera – recommended models include Canon EOS 200D, Nikon Z6, and the Sony Cyber-shot RX100 Mark IV
• Lenses – fisheye, wide zoom, macro, telephoto, etc
• Lighting – lamps, diffusers, reflectors
• Other equipment – tripod, memory cards, flash triggers, strobes
• Editing software – Adobe Photoshop and Adobe LightRoom are industry go-tos
• Computer – recommended models include , the Acer Predator Helios 500, 16″ MacBook Pro and the Dell XPS 15

How much can I earn as a freelance photographer?

According to Glassdoor, the average earnings of a freelance photographer is £31,336. If you’re starting out, the average hourly rate is £28.44 according to Indeed.

Examples of sole traders – dog walker

A total of 3.2 million households in the UK have acquired a pet in roughly the first year of the pandemic, according to the Pet Food Manufacturers’ Association.

According to the PFMA, there are 12 million dogs in Britain and all of them need walking, which was fine when people were stuck working from home and welcomed the break to have a trot round the local park, but not so easy now that people have gone back to the office — even if it’s for three days a week.

Enter the need for a dog walker.

However, it’s just not a question of if you like dogs, but also if you are physically fit enough to cope with long, arduous walks with, say, a Labrador Retriever in driving rain and mud.

If you’re fit and like jogging, some dogwalkers call themselves “dog runners” and specialise in high-energy breeds who like long runs.

On the other hand, even if you’re elderly or have a disability, you could still become a dog walker by making clear you can only handle toy breeds or elderly dogs. 

If you’d like to get more experience with dogs, you might consider volunteering at your local kennels or rescue centre first. It is important to understand how to actually walk dogs, putting big dogs in the middle of the pack and small dogs on the outside, for example, so they won’t get trampled.

Marilyn Lewis, support manager at NarpsUK, says: “The most important thing is to have experience. Get in touch with a local rescue centre and have hands-on experience of putting on a collar and lead and taking dogs for walks.”

What are the regulations around dog walking?

There aren’t many specific rules and regulations relating to dog walking businesses, however, professional dog walkers’ association NarpsUK advises that dog walkers should always meet the owner before walking a dog for the first time, keep records of all dogs and payments, and always protect customers’ information.

• It is advisable to walk no more than four dogs at a time
• Dogs must wear a collar that has the owner’s name and address on it
• Dogs must kept on a lead at all times on roads and pavements
• You could be fined up to £1,000 if you do not clean up dog faeces
• You must be in control of the dog at all times. It is against the law for a dog to be “dangerously out of control” in a public place. The Government has information on controlling your dog in public here
• It’s also a good idea to keep water and a first aid kit on you at all times in case one of the dogs in your care gets hurt

Do I need a qualification to become a dog walker?

City & Guilds offers professional qualifications a Level 2 Certificate of Technical Competence in Dog Walking here.

NarpsUK, the professional association for pet sitters and dog walkers which has a thousand members, offers a Pet Sitting and Dog Walking business course.

Marilyn Lewis, support manager at NarpsUK, says: “The course we offer makes it much easier for people who want to set up a professional dog walking business, such as providing readymade risk assessment forms needed by local councils or disclaimers for, say, dog owners who are happy for their hounds to be off the leash.”

Do I need insurance to become a dog walker?

Yes, this is mandatory to protect you and your clients. You must have public liability insurance in case the dog you are walking causes an accident or injures other dogs or people. A good add-on would be dog walking insurance that covers you if the dog has an accident itself or becomes sick while you are in charge.

If you use your car or home as part of your new dog walking business, you must tell your insurance company and an additional premium may be payable.

And, if your dog walking business takes off and you need to take on extra people help pooches pound the streets, then you should also take out Employer’s Liability Insurance.

You’ll need a criminal record check

If you’re holding a dog owner’s keys and going into their house, you’ll need a Criminal Record Check. For jobs in England and Wales you can request a basic Disclosure and Barring Service check for £23.

There’s a different application process if your business is in Northern Ireland or Scotland. You’ll need to have lived at your current address for more than a year to apply online with Disclosure Scotland for a Basic Disclosure, which costs £25. While for AccessNI, a basic check costs £18.

If you’ve lived at your address for under a year, you can apply for a Criminal Record Check through NarpsUK for £65.

How much does it cost to set up a dog walking business?

One of the great things about setting up a dog-walking business is that there are no start-up costs. You can bootstrap (or should that be “leadstrap”) your business with just one dog. In time, as you take more dogs out, you could get a van and buy crates, a ramp for dogs to climb into the van, signwriting on the side of the van, etc.

To begin with, you can advertise your dog-walking business for free by dropping off leaflets at local dog-grooming parlours, vets and with local dog trainers.

• You’ll need to buy extra harnesses and leads and toys to keep dogs amused
• Setting up a website advertising your new business makes you look professional
• You need to allow £150 for insurance and criminal record checks
• Spend £250 on flyers and business cards and a local newspaper advert

How much will I earn?

The amount you can earn as a dog walker is based on your location. If you are in a well-heeled neighbourhood such as the London suburb of Richmond, dog walkers charge £25 per dog for each walk. Setting up a dog-walking business is more likely to be successful in a town or city.

The average UK hourly rate for dog-walking is £10-£25 for walks that last between 30 minutes and an hour. The median hourly rate is £15 per dog walk and NarpsUK members typically walk around 12 dogs per day. In 2015 Direct Line Pet Insurance published a survey suggested that a reasonably busy dog walker could earn £26,000 a year.

Another element can be home boarding, where owners leave their dogs in someone else’s home when they go abroad as opposed to kennels. You can charge anything between £25 and £30 per dog per night for overnight stays.

More on sole traders

Best business bank accounts for sole traders

The post 6 examples of sole traders appeared first on Small Business UK.

Setting up as one of the UK’s 3.1 million sole traders, you may have lots of questions around which business bank account is best for you.  

You will need to consider cost, free banking period (if there is one), overdrafts and integrations.  

We’ll be looking some of the best business bank accounts on the market targeted specifically at sole traders.

Compare business bank accounts now with this quick form.

Traditional banks

High street banks do offer sole trader accounts and they tend to have a free banking period, which is a huge bonus if your business is new and you’re trying to cut costs. Take a look at the summary below.

HSBC

HSBC has two options for sole traders and single directors of limited companies. 

Packages

HSBC Kinetic (Free for 12 months, £6.50 thereafter)

HSBC Kinetic is a mobile business banking app which is best for sole traders. You can apply in minutes through the app. Note that this will need a credit check.

This smartphone app-based business account is available for either Android or iPhone users.

• Make payments of up to £25,000 per day in-app
• Automatically categorised transactions to help monitor spending
• Credit card and savings account (subject to eligibility and application)
• Insights that could help you manage your money better

Small Business Banking Account (Free for first 12 months, £8 per month thereafter)

The HSBC Small Business Banking Account is a more traditional small business bank account from HSBC, aimed at sole traders and limited companies with turnover of up to £6.5m.

• Loans from £1,000 to £25,000
• Arranged overdraft
• Visa commercial card – no annual fee for the first year
• Access to secure digital banking including the ability to scan and deposit your cheques via the Business Banking Mobile app
• Syncs with Sage accounting software
• International payments for over 60 currencies

Compare HSBC business banking on NerdWallet

TSB

TSB’s Business Plus account has 30 months of free business banking for sole traders, partners and directors. It doesn’t matter if you’re switching or are opening a brand-new bank account.

Package

Business Plus Account (30 months free, £5 thereafter)

• Deposit cash and cheques in Post Office branches as well as TSB branches
• Add a business debit card to your account
• Business advice and support through Enterprise Nation for 12 months.

Co-op Bank

The Co-operative Bank offers the Business Current Account, which is ideal for sole traders who don’t often bank with cash or cheques.

Package

Business Current Account (No account fee)

• No additional cost to deposit cash at the Post Office
• Payment app, Go Get Paid, lets you automate your financial admin
• Integrate your accounting software like Xero, Sage or Quickbooks within your online banking    
• Free support tools such as webinars and start-up guides

Compare The Co-operative Bank business banking on NerdWallet

Barclays

Barclays start-up business account is the bank’s best offering for sole traders.

Package

Start-up Business Account (Free for 12 months, £8.50 a month thereafter)

• Free invoicing and account software from FreshBooks, worth £228 a year
• Expert advice from Barclays’ Business Direct team in the early months to help you grow
• Pay in cheques using the Barclays app

Metro Bank

Metro Bank has a simple Business Bank Account open to sole traders with under £2m turnover.

Package

Business Bank Account (£6 a month; free if your balance stays above £6,000)

• Local Business Manager as a key point of contact, but all colleagues can support you with day-to-day banking
• Store opening 7 days a week
• Transaction and service charges apply

Compare Metro business banking on NerdWallet

Virgin Money

The Virgin Money M Account is designed for businesses with less than £1m in turnover. There’s no monthly charge on the account. However, there will be a 95p charge for manual debit and credit payments – that is, transactions you have to do in-store.

Package

M Account (£0)

• Cash cheques digitally
• Use with Apple Pay and Google Pay
• Set up weekly balance and transaction alerts as you like

Compare Virgin business banking on NerdWallet

Digital banking platforms

Newer players to the game have their own products which are generally quicker and easier to set up and are operated online.

Tide

With Tide, you’ve got three different account options geared at sole traders and freelancers that can scale with your business.

Packages

Free (£0)

• Accounting integrations including QuickBooks, Xero, Quickbooks, Xero, Sage and more
• Multi-business – hold up to five accounts
• Create and send invoices for free

Plus (£9.99 per month plus VAT)

All of the features of Free, and:

• One free expense card for your team
• Priority in-app support

Pro (£18.99 per month plus VAT)

All of the features of Pro, and:

• Unlimited transfers in and out
• One extra expense card included

Cashback (£49.99 per month plus VAT)
All of the features of Plus, and:

• 0.5 per cent cashback on your Tide card
• Dedicated team of account managers

Compare Tide business banking on NerdWallet

Starling Bank

The Starling Bank business account is open to you if you’re a sole trader or the owner of a limited company, a limited liability partnership or if you’re part of a limited company with multiple owners.

There’s no monthly charge on the account and it comes with an overdraft. To boost your business’ functionality, you can opt for the Business Toolkit for £7 a month.

Packages

Original free account (£0)

• Connect to Quickbooks, Xero or FreeAgent
• 24/7 UK support
• Free UK transfers

Business Toolkit (£7 per month including VAT)

Everything in the Original free account, and:

• Invoices and auto-matching
• Tax estimation (for sole traders only)
• Making Tax Digital VAT submission

ANNA Money

ANNA Money is open to any UK resident who is a sole trader.

It takes three minutes to set up and you’ll get a personal webpage with a link to put on your online profiles or to send to someone directly. You can give your employees their own debit card with a spending limit and it’ll sort out their expenses automatically. It also has a receipt capture feature that ANNA automatically categorises and stores digitally.

You can set up free direct debits as well as scheduled and recurring payments.

There are two packages which are more suitable for sole traders, particularly those in the early stages. A Big Business package is also available at £49.90 a month + VAT with unlimited local transfers and ATM withdrawals. See full prices here.

Packages

Pay as you go (£0 per month)

• Free card in any country and currency
• 1 per cent currency conversion fee
• 20p per local transfer in and out of your account

Business (£14.90 per month plus VAT – first month free)

• Pay in cash with one per cent commission
• One additional debit cards included, then £3 per card per month

Compare ANNA Money business banking on NerdWallet

Coconut

Coconut is geared specifically at sole traders but is open to limited companies with too. It has the functionality to handle banking, bookkeeping, invoicing and tax. Sole traders can an extra help up with tax reports to help them with their self-assessment.

Package

Monthly plan (£9 including VAT)

• 30-day free trial
• Sole traders can add their personal account on to their business bank account to separate into personal and business finances
• Connect current accounts and credit cards from 25+ different banks including Barclays, Lloyds and Starling
• Notifications when payment has been made or received, automatic categorisation
• See calculations of how much tax you’ll owe and tips on what expenses you can claim

Revolut

Revolut is a good shout for business owners who travel and trade overseas. Customers can hold, exchange and transfer over 25 currencies with the real exchange rate.

You can issue physical and virtual cards and track your employees spending in real time. Integrations including Zapier and Slack and accounting software like Xero, Sage, FreeAgent, QuickBooks and FreshBooks.

Packages

In terms of accounts you’ve got:

Free (£0 a month)

• Five free local payments
• Free transfers to Revolut accounts
• Local accounts in GBP

Grow (£19 a month)

Everything in Free package, and:

• Five free international payments
• 100 free local payments

Scale (£79 a month)

Everything in Scale, and:

• 25 free international payments
• 1,000 free local payments

For freelancer accounts, there are three packages:

Free (£0 a month)

• Five fee-free local transfers
• No-fee transfers to Revolut accounts
• SWIFT account details

Professional (from £5 a month)

Everything in the Free package, and:

• Bulk payments
• 20 no-fee local transfers
• £5,000 currency exchange at the interbank rate

Ultimate (from £19 a month)

Everything in the Professional package, and:

• Five fee-free international transfers
• 100 no-fee local transfers
• One complimentary metal card

Compare Revolut business banking on NerdWallet

Monzo

Monzo has a couple of low-cost options depending on your business needs.

Accounts aren’t available to some types of businesses but this may be reviewed in future.

Packages

Lite (£0)

• Integration with Xero, FreeAgent and QuickBooks
• Instant notifications

Pro (£5 per month)

Everything in Lite, and:

• New Xero users can get six months of Xero free
• Tax Pots – set aside a percentage of your earnings to put towards tax every time you’re paid

Compare Monzo business banking on NerdWallet

Amaiz

With Amaiz, your account is protected by smart security features including biometric verification, transaction monitoring and fraud detection. Plus, you can make payouts in more than 70 currencies and customise your banking statements. Instant invoices and payments will make your finances easier to handle too.

Packages

Business (£0 a month – VAT may apply)

• Free onboarding

Business+ (£49 a month – VAT may apply)

• £100 onboarding fee

Enterprise (£99 a month – VAT may apply)

• £250-£1,000 onboarding fee

Mettle

Mettle is part of NatWest but is an independent arm. You’ll be eligible if you’re a sole trader, though you must have a balance of less than £50,000 to apply.

Mettle is free to use and free to join.

Package

Mettle (£0)

• Match payments to invoices
• Easily categorise your transactions
• Set aside a set percentage each month to put towards tax with Tax Pots
• FSCS protected
• Get FreeAgent free of charge, saving you £150 a year

Compare Mettle business banking on NerdWallet

Can I use a personal account as a sole trader?

In some cases you can, but it is helpful to have a business bank account for a number of reasons. It’ll be easier to split your business and personal expenses, for starters.

Business bank accounts have greater functionality such as cashing cheques into your account and it’s easier to manage expenses and do your tax return.

A business bank account will build a credit rating for your business so that you can access loans and other financing that you may need later down the line.

Bear in mind as well that some banks simply won’t let you have a personal account for your banking, even if you’re a sole trader. They might even close your account if they cotton on that you’re using your personal account for your business.

The best part? Business bank accounts often offer handy freebies like free accounting software or a free 12 months of banking, for example.

Looking for the latest deals? Compare UK business bank accounts with Nerdwallet here.

More on being a sole trader

Employing people as a sole trader

The post Best business bank accounts for sole traders appeared first on Small Business UK.

Whether or not you need to pay Value Added Tax (VAT) as a sole trader depends entirely on how much money your business is turning over. Basically, if at the end of any month your annual turnover exceeded £85,000 in the previous 12 months, you need to register for VAT.

You can also voluntarily register for VAT even if your turnover is under the threshold. Some sole traders choose to do this so that they can claim back the VAT on goods and services purchased for their business or to avoid financial penalties from accidentally going over the threshold.

Below, we explain how to register for VAT as a sole trader, how much you need to pay, VAT rates, charging VAT to customers, and MTD for VAT.

Registering for VAT as a sole trader 

You can register for VAT online with HMRC. Once approved, you should receive a unique VAT number relevant only to your business within 30 days. 

It will be provided on a VAT registration certificate, which will also have details of the dates you need to submit your first VAT Return by, and your effective date of registration (the date when you started to pay VAT).

Your VAT registration will be under whatever name you choose to trade as, whether that’s your own name or the name of your business. 

VAT rates as a sole trader

There are three different levels of VAT:

• Standard rate – currently 20 per cent, this applies to the majority of goods and services
• Reduced rate – currently 5 per cent, this applies to a very select set of goods and services, such as children’s car seats and home energy
• Zero rate – 0 per cent, which applies to most food and children’s clothes

You can find the full list of VAT ratings and exemptions here: VAT rates on different goods and services. 

(NB – There are also VAT exempt items, for which you cannot claim back input VAT on expenses used to produce the zero rated good. You can find a comprehensive explanation of this here: Help With HMRC)

Charging VAT on goods and services sold to customers

You will be required to charge the VAT element on your sales invoices. For example, if your invoice value is £1,000, you’ll add £200 (20 per cent) to the total price of the product or service and the customer will pay you £1,200.

Every quarter you’ll complete a VAT return showing how much you have collected in VAT from customers (Output VAT) and how much VAT you have paid to your suppliers (Input VAT).

If the Output VAT exceeds the Input VAT, you’ll pay the difference to HMRC. However, if the Input VAT exceeds the Output VAT, you’re able to claim back the difference amount from HMRC.

MTD for VAT

All VAT-registered businesses, regardless of turnover, should now be signed up for Making Tax Digital for VAT. Every business will be signed up automatically unless they apply for a VAT exemption. Making Tax Digital is part of the government’s initiative to make the UK tax system fully digital. 

In order to comply, you’ll have to use HMRC-approved software to maintain digital VAT records and submit your quarterly VAT returns.  

Three VAT Public Notices which offer relevant advice are:

• Notice 700 – VAT General Guide
• Notice 700/1 – Should I be registered for VAT?
• Notice 700/22 – Making Tax Digital for VAT
• These can be located here

The VAT advice line will help with queries on 0300 200 3700.

The relevant form is an Application for Registration – VAT 1 and you can download it all here.

If you have any doubts you should talk to your accountant who will explain the requirements in greater detail, and can help with specific queries or even complete the VAT return on your behalf.

How to easily track your profits?

Accounting software can help you comply with Making Tax Digital for VAT – and generally make it easier to manage your business cashflow and profits.

There’s a range of providers to choose from. We’ve rounded up three of the best below.

Further reading

The best accounting software for small businesses – It’s never been easier or more affordable to manage your tax and accounting using small business accounting software – find the best accounting package for your needs
How to manage your accounts as a small business – Everything you need to know about preparing your financials in the early stages of business
Tax advantages of a limited company versus sole trader – Haydn Rogan explains the tax advantages and disadvantages of status as a limited company and as a sole trader
9 accounting software platforms for Making Tax Digital – Here, Mariah Tompkins scrutinises accounting software options that small businesses can use for their digital tax returns 

The post Sole traders and VAT appeared first on Small Business UK.

Being a sole trader means that you run your own business as an individual and are essentially self-employed. This is the most popular way of trading in the UK, with 3.1m sole proprietorships recorded at the beginning of 2022.

By contrast, a limited liability company is a separate legal entity to you, with separate finances.

Each option has its own advantages and disadvantages, and anyone starting out in business will need to decide what will work best for them.

Here, we look at some of the major differences in terms of legal liability, taxes and bureaucracy.

Also see: Should I go sole trader, partnership or limited company?

Liability

A key advantage of a limited company structure is that it ringfences your personal assets. If your business fails or is sued, you will only lose any investment in the business and won’t be personally liable for meeting charges such as litigation costs or damages from your own finances. Although, in some cases, lenders may require personal guarantees.

As a sole trader, you and your business are one single legal entity. You are personally liable for any debts and liabilities you incur in the running of your business, including taxes, putting you at greater financial risk should something go wrong.

However, the sole trader structure can offer some financial benefits.

Any losses you incur as a sole trader can be offset against your other income for tax purposes, something that can’t be done in a limited company structure as the company is a separate legal entity. For many business start-ups, where losses may be initially incurred while the business gets established and finds its feet, operating as a sole trader can provide an advantage by allowing you to offset any losses against other income to reduce your tax bill.

In addition, because your finances and those of the business are legally one and the same, it also means you can freely borrow from the business’ funds to cover personal expenses if needed. It is important to remember, however, that you will still be taxed on any profits you withdraw from the business.

Tax differences

Limited company taxes

Limited companies must pay corporation tax.

As of April 6, 2023 it’s 25 per cent, up from 19 per cent previously. This applies to businesses with profits of £250,000 or more and applies to all profits. A small profit rate is in place for companies with profits of £50,000 or less. A system of taper relief is in place for companies whose profits fall between these thresholds – find out how much you’d pay using the government calculator.

There are potential further taxes payable when extracting value from the business, including income tax and National Insurance Contributions (NIC), based on the salary you decide to pay yourself (which will be deductible against company profits) and taxes on any dividends (paid out of post-tax profits). You do, however, have control over the timing and method of extraction.

Sole trader taxes

For sole traders the tax rules are different. You will pay income tax on the profits of your business regardless of whether or not you have extracted those profits for personal use or invested them in the business.

In addition to paying income tax on the business profits, sole traders, being self-employed, must also pay Class 2 NIC (£3.45 a week in the 2023/24 tax year if the Lower Profits Threshold of £12,570 per year is exceeded) and Class 4 NIC (9 per cent on profits of the business between £12,570 and £50,270 in the 2023/24 tax year, and 2 per cent on profits over £50,270). You must also register for VAT if your taxable turnover is above the VAT registration threshold, which is £85,000 in 2023/24. This is all calculated and reported to HMRC via the annual self-assessment process and completion of self-assessment tax returns.

Also see: 5 most common tax mistakes when you’re self-employed

Key differences

Due to the lower corporation tax rates, especially for businesses with lower turnover, limited companies are generally taxed less on their profits than a sole trader and therefore tend to be more tax efficient. This is especially so if the profits are invested back into the business rather than extracted, as profits ploughed back into the business are taxed at a lower rate than would be the case if a business operated as a sole trader.

Limited companies can also offer a wider range of tax-free benefits to directors and employees and open up access to certain tax reliefs that aren’t available to sole traders, such as R&D tax reliefs.

However, unlike a sole trader, money cannot be borrowed from the business’ bank account for personal use with impunity. Doing so in a limited company will be considered a ‘benefit in kind’ and carries potential tax ramifications.

Bureaucracy

While a limited company structure offers limited liability and potential tax advantages, it involves more bureaucracy to set up and manage, which you will either need to spend time doing yourself or paying others to do for you.

Overall, a limited company structure comes with more reporting requirements and, as a quid pro quo for the benefit of limited liability, the directors of the company have a wide range of duties and fiduciary responsibilities, which can, in turn, create additional costs and paperwork.

For example, as a director of a limited company you must register the business with HMRC and are legally required to set up a separate company bank account. Accounts must be prepared each year and submitted to HMRC – and they may need to be audited. This offers less privacy, as these accounts are publicly available to everyone online via Companies House, along with your details and those of any other directors.

However, the limited company structure offers greater flexibility in the way you can allocate shares and employ people, allowing you to issue shares in the company to spouses and family and/or appoint them as salaried directors to improve tax efficiency. A corporate structure can also help to create a more professional impression to your clients and suppliers.

Due to the additional formalities in forming a company, setting up as a sole trader is the simplest way to get your new business off the ground.

To become a sole trader, you must register with HMRC as self-employed. This consists of a straightforward online registration form. Timing does matter, however, since there can be financial penalties if you fail to register before the end of the relevant tax year once you’ve started trading.

Unlike in a limited company structure, as a sole trader you aren’t legally required to open a separate business bank account. That said, it’s generally advisable to do so in order to keep better track of business income and expenditure and assist in preparation of tax returns.

Sole trader profits must be calculated for each tax year (April 6 – April 5). Like a limited company, accounts (i.e. a record of business income and expenses) must be prepared to determine the profits of the business, but unlike a limited company they don’t need to be audited or submitted to HMRC, unless specifically requested.

It is possible to change from a sole trader to a limited company, and vice versa, but it is usually easier to start as a sole trader and incorporate later rather than the other way around.

Ultimately, it is important to think carefully about what works best for you and seek professional advice if you’re unsure. Having the right structure in place to suit your specific circumstances and ambitions will put you on a strong footing for future success.

Haydn Rogan is a tax law specialist and partner at national law firm Weightmans.

Read more

Registering your business: sole trader or limited company? – Here, we speak to four small business owners about the decisions they faced when registering their company and what influenced their choices 

Sole traders and VAT – Whether you pass the VAT threshold or register for VAT voluntarily, we explain everything you need to know about Value Added Tax 

9 accounting software platforms for Making Tax Digital – Here, Mariah Tompkins scrutinises accounting software options that small businesses can use for their digital tax returns. 

6 tax breaks every small business should know about – You could add thousands of pounds to your small business bottom line by applying these little-known tax breaks 

The post Tax advantages of a limited company versus sole trader appeared first on Small Business UK.

After weeks of campaigning, Conservative Party members have picked Liz Truss as prime minister over former chancellor Rishi Sunak.

We already have a sense of what a Truss-led government will prioritise. The former foreign secretary has repeatedly talked about the need to cut taxes and is likely to follow through on her rhetoric as prime minister. She has also spoken about the need to stand up to Russia post Ukraine and is widely predicted to continue sanctions against the country in Number 10.

For the self-employed, Truss has talked briefly – though encouragingly – about tackling treasury orthodoxy and helping freelancers during last month’s Conservative Party hustings in Wales. She has also pledged to reform IR35 tax rules.

Winning trust

While I and many others have welcomed her support for the self-employed during the hustings, we shouldn’t get our hopes up just yet. Freelancing has been shaken to its core over the past two years, and we need less talk, and more action. In other words, if Truss is going to get the support of thousands of self-employed workers, then she needs to show that she will follow through on her campaign promises.

>See also: Number of self-employed falls one fifth since Covid-19

At IPSE, we believe Truss needs to unveil a plan that can revitalise a sector that contributes £303bn to the UK economy and provides businesses across the country with innovation, entrepreneurism and dynamism – skills that are paramount to the success of any company. She also needs to ensure that any promise she makes shows how she can increase the numbers of self-employed workers, after two years of pandemic uncertainty which ruined 11 years of continuous growth in the sector.

What Liz Truss needs to do

Truss has pledged a “business revolution” which includes a reform of IR35, the most important issue impacting freelancers. The flawed reform has shifted the responsibility for determining notoriously difficult employment status decisions from self-employed workers to their clients.

>See also: Labour pledges to scrap IR35 rollout to business … and then backtracks

The changes have devastated self-employed workers and created mass uncertainty and confusion for hirers and contractors alike. In fact, IR35 is so destructive that IPSE research has found that more than a third of freelancers (35 per cent) have closed their businesses since the changes. Moreover, the reforms are so difficult to understand that one in two businesses (47 per cent) have reported that IR35 has been a significant administrative burden since its implementation in the private sector in April 2021.

Truss also needs to demonstrate that she is prepared to grasp the nettle on tricky issues like clarifying employment status rules – something which the government had been committed to doing for four years, until it decided to not to last month.

While Truss has the support of Conservative Party members, she doesn’t necessarily have the public’s support. If she wants to get one of the innovative parts of the UK economy on her side, then she needs to tackle a number of other issues affecting thousands of self-employed workers.

More on Tory leadership

What Tory leadership rivals could mean for business

The post How Liz Truss can win over the self-employed appeared first on Small Business UK.

If you’re starting a business, you might be thinking about starting off as a sole trader until your business grows. Alternatively, you may want to run your business as a sole trader for the foreseeable future.

Being a sole trader can be beneficial for freelancers who offer a service such as tradespeople or photographers.

>See also: 6 examples of sole traders

Whatever sector your business is in, there are definite perks to being a sole trader – we list seven of them here.

1. Being Your Own Boss
2. Easier to Set Up than a Limited Company
3. Increased Privacy
4. Less Admin
5. It’s Cheaper
6. Keep all of your post-tax profits
7. More Flexibility

Being your own boss

As a sole trader, you have no shareholders or directors to worry about, so you have control over how you run your business. Without the need to put decisions past boards of directors, you can make quicker, more nimble decisions. This includes everything from your day-to-day operations to your long-term goal planning, allowing you to accept or reject projects and set your own hours.

>See also: Business planning: Short, medium and long-term objectives

What’s more, you can add your own quirk and character, offering a more personal service than larger brands can.

Setting up as a sole trader is easier than setting up as a limited company

There are fewer legal regulations for a sole trader than there are for a limited company so it’s easier and quicker to set up your business. All you have to do is tell HMRC that you’re self-employed. If you’ve got all of your necessary licences in place, you can start trading straight away.

>See also: Does my small business require a licence?

IPSE’s director of policy, Andy Chamberlain, told Small Business: “If you operate as a sole trader, it’s a bit more straightforward than a limited company. You work and get paid as an individual – which is the way most freelancers work. You still have to pay tax on your profits but there are fewer compliance burdens than those that work via a limited company. Probably the best thing about becoming a sole trader is that you can just go ahead and do it. You will need to register as self-employed, but not until the second October that you’ve been trading.”

Increased privacy

Sole traders don’t have to put their details on Companies House like limited companies do. Details from limited companies must include information about accounts and company directors, which is all accessible to the public.

Sole traders are protected by HMRC’s taxpayer confidentiality rules.

“A lot of business owners are quite wary, not sharing or disclosing that information with their competitors or anybody else to see how they’re doing and it is sensitive data to an extent,” said Jahan Aslam, senior partner of Fusion Accountants.

Less admin

Less regulation means less admin and more time to run your business – or have a well-earned rest.

It’s cheaper

Fewer overheads and accounting obligations also means lower costs. Registering as self-employed is free as opposed to registering as a limited company which can cost £12-£40 depending on which method you use.  

Should losses be incurred, especially in the early days, they can be set against other income streams and these losses can be used to reduce the amount of tax they pay.

“I think we would normally say that the biggest advantage for being a sole trader is really when you’re a start-up,” said Andy Gibbs, head of group technical at TaxAssist Accountants. He told Small Business about the benefit of generous carry-back provisions. “Basically, when you start up, you’re more likely to have a loss in an earlier year because you’ll have your start-up costs. With that threat, and if you have a loss in your earlier years, particularly if you’ve come from employment or from a from a background where you’ve been working, where you have a loss as a sole trader, you can do a number of things with it.”

One such thing is you can carry back that loss. Gibbs said that there are some limits and some caveats, but broadly, you can carry back that loss to an earlier year and set it against other income. “So you may in your first year, once you’ve worked out your tax adjusted loss of, say, £10,000, you might be able to carry that loss to a prior year, where you were, say, paying tax at 40 per cent. You get a £4000 refund from carrying back the loss.”

Early year loss claims apply in the first four years of trade. You could do claims beyond that – you just can’t carry them back as far. So those sorts of sole trader advances don’t just extend in the first year, although there is one special type of loss where you can go back a longer period, according to Gibbs.

Keep all of your post-tax profits

As you’ve no shareholders or directors to worry about, you’re free to keep all of your post-tax profits.

More flexibility

As a sole trader you’ll have more flexibility later down the line. If you start off as a limited company and want to become a sole trader, you’d have to dissolve your company by stepping down as the director.

All you have to do to move from sole trader to limited company status is send an online application to Companies House which can be approved in as little as three working days. If you want to wind down the business completely, you’ll need to settle any liabilities, collect money that’s due, keep/sell any physical or propriety asset and distribute any residual money to the owner followed by alerting HMRC.

“With a limited company, it can be it gets more complicated, and particularly the tax side of things of extracting it all is more complicated. It tends to be slightly easier to sell a sole trader business than selling a business which is run through a limited company,” said Gibbs.

“If you can imagine a café owner selling their business, as a sole trader, they will sell their assets, because that’s all they can sell. They can’t sell themselves, they can’t sell the business medium. They’ll sell their shop, their premises. For the owner buying them, that’s an easier sale. If you’re buying the shares, it’s actually more complicated, because you could be buying things that you can’t necessarily see like hidden liabilities and things like that.”

He added that a sole trader has some advantages there, because you can only sell the assets. Whereas when you’re when if you’re running as a limited company, your buyer might not want to buy your limited company, because they may simply not want to take some of the risk. They certainly need to be more careful with their due diligence, they may need to put in legal agreements.

Should I become a sole trader?

Only you can truly know if becoming a sole trader is right for your business. Aslam offers up some guidance to steer you in the right direction: “Our advice for sole trader versus a limited company is based upon a number of factors, the first being how much you are expecting to make in year one, two, three and four.

“As soon as the business starts to make £50,000+ profit, or even £25,000-£30,000+ profit, it’s going to be a viable business. Then I would say probably 99.999 per cent of the businesses incorporate.”

However, for some businesses, going sole trader all the way is the best decision. Gibbs explained why: “There’s no simpler way, they don’t want the scrutiny of their records, they don’t want the additional filing requirements and it works well for them. In truth, the tax advantages of running a limited company have been reduced over the years, so we don’t find there is such a great difference as there used to be between running as a limited company and a sole trader. The tax differences are more blunted, so it is more just a choice and a preference nowadays, much more than it used to be.”

There’s also a third formation option: partnership. “Businesses that tend to stay as effectively sole trader, or indeed partnership, because they’re taxed in the same way, are the professional services firms (surveyors, lawyers, accountants) because the partnership is quite flexible compared to a limited company – less rigid in terms of allowing partners in and out,” said Gibbs.

Read more

Should I go sole trader, partnership or limited company?

The post 7 advantages of being a sole trader appeared first on Small Business UK.

I bought and took over a small business a few years ago, a limited company. Sales now are far less and so a lot less admin is needed. Is it possible to change from a limited company to a sole trader?

It is certainly possible to switch from running your business as a limited company to running it as a sole trader; however, doing so is not necessarily straightforward. Closing down a company is also often referred to as “winding up” but how you go about doing this will be dependent on your business’s financial position.

Before proceeding with “striking off” your company (or, in other words, asking Companies House to remove your company from its register), you will need to tie up all loose ends first.

There are several administrative tasks you should ensure are completed first:

• Pay off any outstanding debts as well as chase for any unpaid invoices due to your company
• Complete your final corporation tax return
• File your final VAT return (if your company is VAT registered) and then cancel your VAT registration – which you can do either via post or online if you do not intend to be VAT registered as a sole trader, or you can apply for a change in status if you would like to keep your VAT registration as a sole trader
• Pay employees their final wages, or, if you are a sole director then decide how much to pay as your final director’s salary and dividends (speak to an accountant to make sure you are doing this as tax-efficiently as possible by making the most of allowances). Then you will need to shut down your PAYE scheme. If you will continue to have employees as a sole trader, you cannot transfer your PAYE scheme over and must start a new PAYE scheme instead
• Close down your business bank account

>See also: 5 most common tax mistakes when you’re self-employed

How to close down a limited company

Once you’ve settled your company’s outstanding legal obligations, you can move on to closing down the company. There are two methods of closing down your company if it is solvent, but only one option if it is insolvent. To be solvent means the company is able to pay off all outstanding debts (including tax and salaries), so if you were unable to do all of the above it may be that your company is insolvent.

Striking off your limited company

The first way to close your company down if it is solvent with remaining profits of under £25,000 is to informally (voluntarily) strike off your company with Companies House. To do this you need to apply via a DS01 form alongside a £10 fee. You will only be able to close down your company using this method if you have not been trading in the three months prior to your application for striking off or have not changed your company’s name within the 3 months prior. When Companies House receives this application, they put out a notice in The Gazette which announces to the public your intention to close down the company. This allows any third parties to raise objections within three months of the publication (they’ll usually only do this if the company owes them any outstanding money). If three months passes without any objections, Companies House will announce the closure of the company in the Gazette.

Member Voluntary Liquidation

The other way to close down your company if it is solvent and has remaining profits of over £25,000 is to use a Members’ Voluntary Liquidation (MVL). This is recommended where a company has profits over £25,000 as it can be more tax-efficient to do so than an informal strike off. By using an MVL, you appoint a licensed insolvency practitioner who takes over your company to ensure an orderly dissolution of the company. To use an MVL, all directors or at least a majority of directors need to make a statutory declaration that the company is solvent by preparing a closing financial statement which is sworn before a solicitor. Once this has been done, the directors have five weeks to hold a shareholders’ meeting to pass a resolution agreeing to put the company into liquidation. A liquidator is then appointed, and the appointment will be published in The Gazette. From then on, the liquidator takes control of the company to settle debts, any legal disputes, realise assets and distribute the surplus funds to the shareholders.

If your limited company is insolvent

On the other hand, if your company is insolvent then you will need to use a Creditors’ Voluntary Liquidation (CVL). It is a similar process, whereby the director or majority of directors decide to pursue a CVL and hold a meeting for shareholders to vote in agreement. Again, a licensed insolvency practitioner is appointed as the liquidator and Companies House are notified to publish an announcement in The Gazette. The liquidator will then circulate a statement of affairs (which is a financial statement detailing the company’s assets and liabilities) to all creditors as well as a proposal on how any liquidated assets will be distributed. The creditors must vote to accept the proposal at which point assets of the company can then be sold off and any remaining debts are written off. Once all is completed, the company will be removed from Companies House.

>See also: What is a sole trader? A small business guide

Notify HMRC that you are now a sole trader

Finally, to switch back to running your business as a sole trader, you must notify HMRC of your new employment status as self-employed. If you are continuing the same business, then you should also inform any customers and clients of the change as well as include information on your personal bank details as the company’s bank account will now be closed.

Any references to your business as a company should also be updated – such as information that may be on your website or stationery.

Do not forget that you will still need to continue completing your self-assessment tax return but are no longer required to complete company tax returns.

Simon Thomas is managing director of Oxford-based chartered accountants Ridgefield Consulting

Further reading

The post Can I switch a limited company to sole trader? appeared first on Small Business UK.

Setting out on your own as a sole trader brings a degree of freedom and control. But it also brings more responsibility and risks.

And with risk comes insurance. You will need insurance to cover the cost in case anything unforeseen happens to the business: a client complaint, a faulty product, an injury to a sub-contractor.

Despite these risks, a 2019 survey by contractor Qdos worryingly found that potentially 1.1 million sole traders in the UK operate with no insurance at all.

Small Business Pro has a 24/7 legal and tax line that you can call if you need dedicated expert support. It will also help with the heavy lifting of managing customers, taking payments, insurance, finance and HR, plus you’ll get a host of personal wellbeing benefits.

You can find out more about Small Business Pro here.

The type of insurance you need ultimately depends on the sector and business you have, but six to consider are:

#1 – Employer’s liability insurance

If you’re hiring someone, or even sub-contracting work out, you will need employer’s liability insurance as a legal requirement.

Your policy must cover the business for at least £5m from a recognised insurer (you can check this on the FCA register) and you must display the certificate.

#2 – Public liability insurance

The most common type of business insurance. This offsets the cost if a member of the public makes a claim and your business is at fault.

This includes injury to a member of the public, accidental damage, legal expenses and any compensation claims.

#3 – Professional indemnity insurance

If your work results in a client losing money, because of negligent advice for example, this insurance covers any claims made against the business.

In some sectors (accountants, architects and financial advisors for example), this is mandatory.

>See also: What is professional indemnity insurance?

#4 – Business car insurance

If you rely on a personal car for business purposes, heavily or otherwise, you will need the vehicle insured for the eventuality it is involved in an accident.

Keep a close eye on how many miles are for business purposes and how many are for social or personal reasons, as this will affect the premium.

#5 – Product liability insurance

If you’re a sole trader in manufacturing, you can be covered for any claims made against a product which has been lost, become damaged, faulty or caused injury.

#6 – Cyber insurance

For businesses that operate mainly online, cyber insurance provides cover in the event of a cyber-attack. Research found small businesses are becoming more prone to these types of attacks, with 39 per cent of small businesses reporting cybersecurity breaches in the last 12 months. Phishing is the biggest threat, affecting 83 per cent of those businesses. 

Despite this, many small businesses still aren’t prepared for cyber-attacks.

>See also: How to choose a cybersecurity solution for your small business

What if I run my business from home?

Your business could be entirely home based. If so, it is best to talk to your home insurer to ensure all assets and business activities are covered.

“Never assume that home insurance will provide you for working from home,” says Oliver Leyens, director at Heath Crawford. “If the business is clerical, most insurers are fine with this, but if your work is more manual, then a more specialist working from home policy could be required over and above the standard home insurance.

“Company owned assets can’t be covered under a standard home insurance policy.”

Other types of business insurance:

Alternatively, your specialism could mean you work with heights, depths or extreme temperatures. These are factors to talk through with a broker as there will be specific insurance products for each.

In fact, insurance brokers have products that cover an almost infinite number of scenarios. You can be covered in the event you’re called up for jury service, in which case you can claim up to £1,000 in lost revenue; the cost of any negative PR; and if there is any interruption to business which could stop trade for a period of time (Covid was a prime example).

The following aspects can determine what you need more specifically:

• Number of employees
• Business assets/contents and where these are kept
• Turnover
• Business sector
• Location
• Relationship with members of the public
• Business premises

Is there a one-size-fits-all business insurance product?

The good news is you don’t need to take out individual policies for all the above. Providers will allow you to select the ones that are relevant to your business and offer a quote to encompass them all. See our article on commercial combined insurance for more detail on how this cover can be arranged.

More on business insurance

Business insurance everything you need to know

The post What business insurance do I need as a sole trader? appeared first on Small Business UK.

Setting up in business is a great new chapter in anyone’s life.

As well as the exciting stuff like naming your business and finding new customers, you also need to make sure you stay on the right side of the taxman and the law, and part of this is picking the right structure for your new business. Asking “What is a sole trader?” compared to a limited company is an important consideration.

Here, Emily Coltman investigates one very popular structure for new business owners: the sole tradership.

What is a sole trader?

Being in business on your own, if you don’t set up a limited company at Companies House to run your business through, then by definition, you’re a sole trader.

When you’re a sole trader, you are self-employed, and legally, you and your business are one and the same. We’ll explore what that means in a bit more detail shortly.

How do I register as a sole trader?

You need to register online with HMRC here – so that they know about your new business and expect regular tax reports from you.

What do you mean, tax reports?

At the moment, all business owners in the UK have to fill in a document called a tax return and send it to HMRC every year. It’ll contain details of all your income, including any profits that your business makes.

From 6 April 2024, sole traders will have to report their figures to HMRC once a quarter plus extra at the end of the year instead, under a system called Making Tax Digital for Income Tax.

What numbers do I need to tell HMRC?

You’ll need to choose a date every year that you’re going to prepare your business accounts to. This is called your accounting year end, or year-end for short. The simplest year end for sole traders is 5 April because that matches the UK’s tax year.

For now, each year, you’ll need to add up your business’s income and day-to-day running costs, and report them to HMRC on your tax return, on a set of pages in the tax return called “self-employment”. Using a straightforward online accounting application like FreeAgent can help you through this process.

The reporting under Making Tax Digital (MTD) will be broadly similar to this, except that you’ll need to do it more often.

My friend is setting up his business as a limited company. What are the differences between that and a sole trader?

Good question!

The fundamental difference is that when you’re a sole trader, you and your business are legally one and the same, as we saw above. But if you’re running your business through a limited company, the company is a separate legal entity from you. You will most likely be a director of the company (you run it), and also a shareholder in the company (which means you own all or part of it).

That legal separation impacts on a lot of what we’re about to see.

‘The fundamental difference is that when you’re a sole trader, you and your business are legally one and the same’

Emily Coltman, chief accountant FreeAgent

Advantages of incorporation

Turning your business into a limited company is called “incorporation”. Here are the advantages:

Tax savings

You may well be able to save tax overall if you run your business through a limited company, especially once its profit goes over about £50,000 a year, plus small companies do not have to make tax payments on account.

These savings come about because, as a sole trader, you pay income tax at 20 per cent, 40 per cent or 45 per cent on your profits (the rates may be different if you are based in Scotland or Wales), and also class 4 national insurance at 10.25 per cent or 3.25 per cent (in both cases the rates change as your profits increase, and the national insurance rate is expected to reduce back to 9 per cent/2 per cent when the Health and Social Care Levy is separated out).

But until its profits go over £300,000 a year, a limited company pays corporation tax on those profits at 20 per cent, and no national insurance. You can take money out of the company as dividends, so long as it has enough profit to cover those dividends, and again, you’ll pay no national insurance on those dividends.

This is less effective when your profits are lower because, depending on your other income, as a sole trader you may have a personal allowance to put against your business’s profits. Limited companies are not entitled to a personal allowance.

It’s important to discuss potential tax savings carefully with your accountant and ask them to crunch the numbers for you to quantify what you could save, as your situation will be different depending on whether you have any other income.

Limited liability

Because a company is a separate legal entity from you, it can own equipment, incur debts, and pay bills in its own right. That means that, if you’re running your business through a limited company and the company is sued, your own personal assets, such as your house and car, cannot be seized to pay the debt, unless you have given a personal guarantee to a company creditor (say if the company borrowed money from the bank and you undertook to pay the loan back if the company couldn’t).

When you’re a sole trader, on the other hand, your own assets could be seized to pay a business debt, because you and the business are legally the same entity.

Some costs attract more tax relief

When you’re running your business through a limited company, certain costs are given more tax relief. For example, a limited company can pay for food and drink for its employees when they’re out and about – and you would almost certainly count as an employee of the company.

But for a sole trader, the rules are more restricted; you can only claim tax relief on the cost of food and drink when you’re travelling on business if the journey involves an overnight stay, or it’s outside your normal working pattern, or your business is by nature itinerant – that is you spend time on different client sites and not too long at any of them, for example you are a jobbing gardener or chimney sweep.

More attractive for inward investment

Potential suppliers and investors may well view your business as more commercial and serious if you run it through a limited company. When you are a sole trader, there is no way anyone else can buy into your business unless you turn it into a partnership, but it is fairly easy to sell shares in a limited company to an investor.

Disadvantages of incorporation

It’s very important not to think only of the potential tax savings and risk incorporating without seeing the full picture.

Here are the key disadvantages of running your business through a limited company.

Potential tax costs

Because the company is a separate legal entity from you, you can’t draw money out of its bank account freely, unlike when you are a sole trader – as a sole trader, you can take as much money out of the business bank account as you need to, and this doesn’t affect how much tax you pay.

There are only three ways that a company can legally pay you money. It can pay you a salary for the work you do; if it has enough profit to do so, it can pay dividends on the shares you own; and it can pay you back for any expenses you personally incur on its behalf, such as if you buy a train ticket on your own credit card to visit a client.

If you take money out of the company over and above these three options, then you could have extra tax to pay.

Also, if you are a sole trader and your business makes a loss, you may well be able to use that loss to save tax on your other income. When a company makes a loss, it can only use that loss against its own profits. So if you have a job as well as your business, and your business makes a loss, then if that business is a sole trade, you may be able to get back some of the tax you’ve paid on your salary. You won’t be able to do that if your business is a limited company.

More different kinds of paperwork

One of your legal responsibilities as a director of a company would be to file the company’s paperwork on time.

As a sole trader you currently only have one document to file with government bodies each year – your tax return – though this of course will change when Making Tax Digital starts. A limited company with one director already has, between them, at least four documents to file each year.

The company must file a set of accounts and a document called a confirmation statement each year at Companies House. The company must also file a corporation tax return with HMRC, and each director must file a personal tax return. As you would almost certainly be an employee of the company and take a salary, you will have to register the company as an employer, and it will need to operate a payroll for you. Sole traders, being self-employed, do not need to have the business operate a payroll unless they take on staff.

All this means that either you will have to spend more time preparing and filing the paperwork yourself, or that your accountancy fees will be a good deal higher after incorporation.

‘If you are looking for the simplest structure for your new business to start with, that would be sole tradership’

Emily Coltman, chief accountant FreeAgent

Lack of privacy

The company’s accounts and confirmation statement, once they’re filed at Companies House, are in the public domain and available for anyone to see on sites such as FullCircl. This means that not only are your figures visible, but also the company’s registered office address. For sole traders, there is no such lack of privacy.

As you can see it’s not a clear-cut choice. We recommend you take time to weigh up the pros and cons and discuss them thoroughly with your accountant, but if you are looking for the simplest structure for your new business to start with, that would be sole tradership.

Emily Coltman FCA is chief accountant at FreeAgent, which provides accounting software for small businesses and accountants

The post What is a sole trader? A small business guide appeared first on Small Business UK.

A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts.

Every asset of the business is owned by the proprietor and all the business debt is theirs too.

This means the owner has no less liability than if they were acting as an individual as opposed to a business.

In short, only one person can run a sole trader business. They can choose to employ a manager to run the business, but the risks and rewards remain theirs.

Instead, it is entirely possible for two or more people to own and manage a business by means of a partnership.

>See also: Should I go sole trader, partnership or limited company?

They have to decide how to share profits or losses and how business decisions are made. Often one person looks after the finances and the other deals with sales and customer service.

They also have to decide who brings what assets or money into the business. It is usual and recommended to put these details down in a partnership agreement, so in the event of disputes the agreement outlines the procedures in how to resolve them.

Can you register a newly formed limited company as ‘dormant’ and start off as a sole trader?

It is possible to create a limited company which does not start trading immediately after it is formed and to start a business as sole trader or partnership.

However, there aren’t many reasons why you’d want to do this. After all, limited companies can be formed in 48 hours or sooner with the right help (you can buy “off-the-shelf” companies).

The taxation of a sole trader or partnership is different from a limited company. Limited companies pay corporation tax on profits, whereas a sole trader or partnership pays income tax and national insurance on profits.

Most small businesses which start as limited companies do so for tax or national insurance reasons.

Another advantage of a limited company is that you can have as many ‘owners’ as the share capital allows, so it is straightforward to create new shareholders.

More on sole traders

Best business bank accounts for sole traders

The post Can two people run a sole trader business? appeared first on Small Business UK.

More than 40 per cent of the self-employed earned less than £1,000 a month in April compared with 27 per cent pre-Covid-19.

One third of self-employed workers are struggling with daily living expenses, especially as energy is often a major cost for many small businesses.

And the total number of hours worked – and most self-employed get paid by the hour – is falling steadily, according to the latest London School of Economics survey of self-employment.

>See also: Number of self-employed falls one fifth since Covid-19

Self-employed workers in the UK were among those hardest hit by the pandemic and their incomes and businesses have still not recovered, according to the LSE Centre for Economic Performance (CEP) research.

Stephen Machin, co-author and director of CEP, said: “The current cost-of-living crisis is exacerbating the challenges for self-employed workers, whose incomes and profits have not fully recovered from the pandemic shock. The impact of Covid-19 restrictions has lightened, but recovery has stalled in the face of the high costs of energy and raw materials. These are contributing to the financial difficulties of the self-employed, particularly small businesses.”

Commenting on the CEP research in the Daily Telegraph columnist Matthew Lynn argued that people who work for themselves “have been treated appallingly by government” whether its through a complicated and restricted Covid-19 financial support scheme, higher National Insurance and dividend taxes, IR35 treating them as employees without the benefits, and now forcing them to use expensive Making Tax Digital accounting software.

“If the government was on a mission to hound the self-employed out of existence it could hardly be making a better job of it,” he wrote.

>See also: IR35: How the controversial tax changes have left self-employment on the ropes

Robert Blackburn, co-author of the report and professor of entrepreneurship at the University of Liverpool, said: “While the number of employees in the UK has steadily grown and is now above pre-pandemic levels, the numbers in self-employment are lower than they were in 2019. There was an increase in the number of people leaving self-employment during the Covid-19 crisis, but as the economy has picked up, the numbers going into self-employment have remained relatively low.”

Maria Ventura, co-author and research assistant at CEP, added: “Our findings suggest that the slow recovery of the self-employed from the effects of Covid-19 and its associated lockdown and support measures, is in jeopardy because of new challenges.”

The CEP surveyed 1,500 self-employed workers between 12 May and 7 June for its research.

More on being self-employed

How to save up to £3,000 in tax being self-employed

The post 40% of self-employed earn less than £1,000 a month appeared first on Small Business UK.

The fastest way to start a business is as a sole trader. You can start trading straight away and have three months to tell HM Revenue and Customs (HMRC) of your self-employed status before you incur a fine.

It’s easy to start this process: you simply have to tell them you are paying tax through self assessment. You can find the self assessment form to register as a sole trader from here.

Can a sole trader employ staff?

Yes. Once you get going as a sole trader you can employ people just as you would do in a limited company, but you have to tell HMRC that you are doing so. The process of setting up as an employer is the same for sole traders as for limited companies:

• Step 1 is to register as an employer. You can find more information about registering as an employer here or call the New Employer Helpline on 0300 200 3211.
• Step 2 is to register for PAYE, and this should ideally be done before the first payment of any salaries (but no more than two months in advance).

Once registered for PAYE. HMRC will issue you with reference numbers allowing you to enrol for PAYE online. Payroll or small business accounting software will be your friend here. Much better than doing it by hand so worth the cost.

Remember that you’ll need to factor in employee benefits like sick pay, holiday pay and maternity/paternity pay. Enrol them in a pension too.

Will need employers’ liability insurance. Find out what insurance you need by reading Business insurance everything you need to know.

Make sure you judge salaries right too. the salary needs to be calculated to ensure that fair wages are met. Small businesses can deal with cost limitations by hiring an employee part-time or hiring someone on a fixed-term contract to determine the viability of the position. If they’re on shifts then you need to make sure that they’re paid at least the National Living Wage (or the National Minimum Wage if they’re under 23).

Check out Payscale, Glassdoor and Indeed to get a better idea of your industry’s standard for salary figure. A candidate’s salary expectations can be a steer too, especially if they have some experience in their field.

Ensure they have a legal right to work in the UK and there may be background or Disclosure Barring Service (DBS) checks involved depending on the role.

Read more over at Hiring your first employee as a small business.

The importance of contracts

A contract of employment should be made as soon as the job offer is accepted. This is not a ‘legal’ requirement, but it will will save you a lot of bother going forward. Remember, the key difference between being a sole trader and limited company is ‘liability’ – because you will be ‘personally’ responsible for any debts or compensation arising from any disputes.

The term ‘contract’ can be a bit misleading and is often misused as it doesn’t refer to a piece of paper – initially, it doesn’t have to be in writing. However, your employee is entitled to a written statement of the main terms of the contract within two months of starting work. This applies to employees who are working for you for more than a month.

You can get more information about employment contracts here and you can buy a standard written statement here.

Starting as a freelance? Make sure you are on top of your finances with one these accounting systems:

The post Employing people as a sole trader appeared first on Small Business UK.

Buried in the small print of last October’s Budget was a change in the rules as to how tax is calculated for the self-employed.

More than 500,000 sole traders – i.e. the self-employed or unincorporated businesses – now face an average extra tax bill of around £3,000 a year in a move which will net the Treasury £1.7bn over the next five years.

It’s no wonder this has already been criticised for putting an extra burden on the self-employed who have already had a tough time throughout the pandemic.

What’s changing in how the self-employed report tax

From 2024, all unincorporated businesses will need to make sure their profit and loss reporting is in line with the tax year, as accounting dates can run at any time of year under the current system. HMRC has said that any additional tax can be spread over a period of five years to ease the cash flow.

The Government has said this simplification will make the system more accessible for the self-employed. Currently, because it’s so complex, sole traders have been unable to claim the tax reliefs they are also entitled to, runs the argument. So the idea is the increased tax bill won’t be as keenly felt due to the reliefs the self-employed will now be able to access.   

However the Institute of Chartered Accounts in England and Wales (ICAEW) has contested that this new system could create uncertainty for sole traders because “such businesses are now likely to face increased costs and uncertainty due to the need to use estimated figures in their tax returns”.

The accountancy body concluded that “on further consideration we do not see it will provide any substantive simplification benefits to the UK tax system”.

>See also: Should you register as a sole trader or a limited company?

Should sole traders set up limited companies?

Becoming a limited company can have many benefits including:

• Lowering your tax bill
• Relieving you of personal liability of your business
• Legitimising, protecting and enhancing perceptions of your brand
• Scope for different shareholders/directors

For those who have higher profits the above can be a very sensible and smart move.

If your business was to incorporate, this would result in a cessation of the self-employment or partnership, which in turn prompts a specific calculation which can result in a longer period being assessed. However, you could benefit from historic “overlap profits”. In this case, ceasing your self-employment could potentially result in a lower tax bill.

However it’s not always suitable for those with lower profits, even if it could help you swerve the increased tax. It can be a relatively big cost in money and time to become a limited company, and if you’re not earning much or don’t plan to in the future, it could cost you more than the extra £3,000 you may have to pay per year.

It’s worth reviewing what your future plans are with your business. Becoming incorporated doesn’t always favour a business if your profits aren’t high enough. And remember it will create extra paperwork for you that might squeeze your time further.

There are pros and cons to incorporation v self-employment, and the process can take several months. Each tax situation needs to be looked at carefully, and advice taken from a professional. In the meantime, businesses should start to plan for the possible impact on cash flow ahead.

Marcin Durlak is managing partner at IMD Solicitors

Further reading

Registering your business: sole trader or limited company? 

The post How to save up to £3,000 in tax being self-employed appeared first on Small Business UK.

The number of solo self-employed people has fallen for the second consecutive year, as the pandemic and increased taxation have deterred self-employment.

Almost a million freelancers have given up on being their own bosses, with the number of self-employed workers falling to around 4.1m from a peak of 5m before the pandemic, new figures from trade body Ipse showed.

The number of solo self-employed workers in the UK fell by 5 per cent from 4.3m in 2020 to 4.1m in 2021.

>See also: Just nine people trialing digital tax for self-employed

This marks the second consecutive year that the number of solo workers has dropped since the 40 per cent growth in self-employment between 2008 and 2019.

The decline began in 2020, when 700,000 freelancers gave up self-employment after the pandemic hit their incomes and caused average earnings to fall by close to a third.

Some of the sectors where numbers dropped the most were in “artistic, literary and media occupations”, with numbers falling 14 per cent to 258,000, the figures showed. In construction and building trades numbers dropped 10 per cent to 366,000.

>See also: Reprieve for self-employed having to report tax quarterly

However, the number of “transport drivers” and those working in “agricultural and related trades” rose 6 per cent, as workers were called in to drive lorries and get food on shelves after supply chain issues struck towards the end of last year.

Derek Cribb, CEO of Ipse, said: “It is worrying to see that the number of self-employed workers has fallen for a second year running, especially given the significant contribution the self-employed are known to make in periods of economic recovery.

“It is clear that the pandemic and other issues like IR35 and Brexit have seriously impacted the sector and have sown seeds of doubt and uncertainty throughout the freelancing industry over the past two years.”

More on being self-employed

What is the definition of a sole trader and being self-employed

The post Number of self-employed falls one fifth since Covid-19 appeared first on Small Business UK.