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  • Starting Your Own Trade Business

    Are you considering starting your own trade business and going it alone? Time to be your own boss. Here are a few things you should consider first:

    • Choosing limited company or sole trader
    • Register with the HMRC
    • Do you need to open a business bank account
    • Keeping accounts and hiring an accountant
    • Paying yourself and others
    • Invoicing software
    • Will you hire an apprentice?
    • Advertising and finding regular work
    • Insurance cover
    • Submitting a tax return
    • Registering for VAT

    Registering as a Limited Company vs Sole Trader

    As a sole trader, you and the company are the same thing. This means without any insurance cover, you and everything you own are at risk. This is because there is no legal separation between the two. The benefit is that being a sole trader often involves less paperwork. You will typically only require a Self Assessment Tax Return once a year.

    As a limited company however, you and the company become legal separate entities. It is made up of directors and shareholders (which can still be the same person). This separation means you and your personal assets are protected from any possible legal action. Being a limited company though will mean more paperwork. This is on top of any personal tax return. Additional returns include confirmation statement and also pay and submit a corporation tax return.

    If you are unsure which option is best for you, it's best to speak to an accountant. An accountant can go into more depth with your personal situation and advise you with the latest options or changes.

    Registering with the HMRC

    Once you earn income of £1,000 or more, you will need to register as a business with the HMRC. Earn less than this and there is no requirement to register your business. As a sole trader you will need to register with the HMRC. They will then send you a UTR (Unique Taxpayer Reference). Invest in using accounting software to track income and expenditure, all you will need to do at the end of the year is submit your tax return.

    Registering as a limited company is a little bit more involved and also require additional returns to be submitted. It's best to speak to an accountant to who will produce your accounts. These can then be submitted to the HMRC and Companies House.

    You will need to register your chosen company name with Companies House. This is called incorporating your business and once registered, you will be issued with a certificate of incorporation. You'll need to appoint at least one director who will become legally responsible for submitting the returns each year.

    Opening a Business Bank Account

    As a sole trader, there is no requirement to have a separate business bank account. However, it is advisable to have one, as this will be easier to track your income and expenditure. You can also then integrate the account with any accounting software.

    As a limited company there is still no legal requirement to set up a business bank account. There however is a requirement to show money is accounted for separately to any personal account. Once a business bank account is set up you can withdraw salary, expenses and dividends. Anything taken from the account that doesn't fall in to these categories will be classed as a directors loan.

    Keeping Accounts and Hiring an Accountant

    Regardless of which type of business you operate; you will be required to keep track of all your income and expenditure. Keeping track of receipts, who owes you money and invoices is all much easier with the right accounting software.

    Some business bank accounts will even offer you free access to accounting software. Working with the right accountant can help you set it up and help you keep everything in order.

    If you're thinking or hope to take on additional labour in the future, look for accounting software that includes a payroll option.

    Paying Yourself When Self Employed

    As a sole trader, you will take drawings that will be classed as your payment. At the end of each tax year, you will need to submit a Self Assessment tax return. This will calculate the amount of tax that you have to pay. To save tax coming as a shock at the end of the year, it is advisable to save 20-30% of your income. This is until you have settled your tax bill for the year.

    As a limited company, you can pay yourself dividends, but will also probably need to set up a simple payroll in order to process the PAYE (Pay As You Earn) tax that will be due each month. If you have ever worked for anyone, this is what they will have had to do for you in order to pay you a salary.

    Something to be aware of is that as a limited company you will attract employer and employee costs on payroll. You will also have to pay corporation tax on any profits that the company makes. This is why we recommend speaking to an accountant before deciding if you will be a sole trader or a limited company.

    Invoicing Software for Small Business

    Either as a sole trader or as a limited company, having software that will track all your income and expenditure, as well as issue and track invoicing is in our opinion worth the cost involved.

    Accounting software like FreeAgent, Sage or Xero are all popular accounting packages that will help you keep track. Once you issue an invoice, the software will also issue regular reminders until the invoice is settled. This is ideal for chasing any awkward customers, as the process is automatic and is often a polite way to remind a customer when a bill is due.

    Will You Hire an Apprentice?

    When it comes to hiring additional help, you will need to treat them like every employer is treated when employed by a company. You will need a contract of employment that sets out what the employee has to do and what you (the employer) will do for them in exchange for their service.

    There are many services online that offer contracting services, just search employment contract template UK and find a service that suits you.

    You'll need to make sure you keep up to date with any changes in employment law and ways tax is calculated. You can find all this kind of information on the HMRC website, but also your accountant will be able to give you any advice on changes.

    Advertising and Finding Work

    Being self-employed means you also have to work on finding the right work and contracts. This is where MyJobQuote helps, as you will be sent contact details of job leads in your area that you can then purchase and quote the work.

    Other ways to win work are by word of mouth, either from previous clients or friends in the trade that are happy to work with you and recommend your work. It's also worth sharing and being active on local Facebook groups, as this is often the first place many people will ask for recommendations.  

    Read our article on how to gain customer trust as a tradesperson and win more work.

    Insurance Cover

    As a tradesperson, it is highly recommended to make sure you have the right insurance cover. The insurance is there to cover you and your client should anything go wrong. Public liability, employer's liability, van insurance and insurance that covers your tools are all worth the premium should anything go wrong.

    If you are a sole trader it is even more important to have public liability insurance, as you will be personally responsible should something go wrong.

    Being self-employed you might also want to consider health insurance and income protection insurance are also worth looking at, as they can cover you if you are injured while working or even worse are no longer able to work due to an accident.

    Submitting a Tax Return

    Just the thought of submitting a tax return can feel daunting and the more you look at it feel over complicated. The HMRC have a saying that tax doesn't have to be taxing. But if you have not been keeping regular records, it can take longer than you think to submit your return.

    No accountant is going to thank you if you hand them a box of receipts for the year and ask them to do your return. It's going to take them longer to sort for you and because of this will cost you more in paying for their time.

    Do yourself and your business a favour and invest in finding an account that will help you get set up and running. Small independent accountants will be more than happy to set up the software for you and go through how to make and record transactions.

    Registering for VAT – Do you need to do it?

    When it comes to VAT, you will have to charge it if you are registered for VAT. If you are not VAT registered, then you will not have to charge VAT.

    Choosing to register for VAT is your choice until your turnover reaches £85,000. Once you reach this level of turn over, you are required to register your business. Below the level of £85,000, you can choose if you want to register for VAT.

    It's important to note though, while you can de-register for VAT in some circumstances, it is not a straightforward process and you can be refused if the HMRC deem your actions intentional. Always speak to a qualified tax accountant about your personal situation before deciding or the best steps to take if you are approaching £85,000 in turnover.

    Final Thoughts

    Starting your own trade business can be a daunting task. As you are the boss, you’ll need to find all of the work and spend more time doing paperwork. It may be worth trying to build up a customer base whilst working part time for someone else. If you have a solid customer base and a great work ethic then there is no reason as to why your trade business cannot succeed.

    MyJobQuote can help new tradespeople start off as we send you job leads depending on your trade and location, so there is no need to pay for advertisement yourself. You simply pay per lead to receive the homeowners contact details so you can quote to win the work. We also offer a free month trial which includes free job leads to help you get started.

    Signup as a tradesperson for free Here!

    Last updated by MyJobQuote on 5th January 2021.

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