By adopting an approach of researching the opportunity and getting the administration right from the start the chance of success is increased, and that is important, as more new start up businesses go out of business leaving the sole trader with personal debts than survive in the first 3 years.
Setting up with the Business name, Business plan and personal liability risk
The first point of how to start up business as a sole trader is you can use your own name or choose a suitable business name. All transactions would be conducted under the actual name of the sole trader or the actual name trading as the business name. The sole trader own name should be used on all business stationery, letters, invoices, receipts and cheques.
As all liabilities incurred are the personal responsibility of the sole trader and there is no distinction between business assets and personal assets. Should the business incur losses, and that is quite common in the first year, all losses remain the personal liability of the sole trader.
An important part of how to start up business to take before trading commences is to prepare a business plan. A business plan is essential for a new start up if funding is being sought but is also important since the first year trading performance can be difficult. The business plan consists of sales, purchases, investment in assets and a financial profit statement plus cash flow forecast.
The major benefit initially to be obtained from the business plan for a new start up is the research the sole trader conducts into such areas as competition, market research, suppliers, costs and funding requirements. A business plan is essential to raising new start up finance.
HMRC registration, local authority licenses, retail change of use.
When trading starts, which would be the date of the first sale or purchase, all new start up sole traders have a responsibility to register as self employed with HMRC. Self employment business registration is required within 3 months of trading commencing or the sole trader may be fined £100 for failing to register on time. Following business registration HMRC will send an annual self employed tax return which has to be completed each financial year. It is usually advisable to adopt the 5 April as the year end date and so the first year would be less than 12 months trading.
The self employed registration form can be obtained by telephoning HMRC or visiting and downloading the new business registration form direct from the HMRC website.
There is no requirement to register the business or business name with Companies House which is solely for limited companies.
Depending upon the type of trade there may be a requirement to for business registration with the local authority where either an application for change of use of the premises might be required for a retail business and/or a local authority license required for the proposed trade such as a taxi driver license, child minder, restaurant or pet shop license. Sole traders need to contact the local authority to determine if a license is required for the new business.
Insurance and public liability
When considering how to start up business a sole trader consideration should be given to insurance requirements. Employers liability insurance will be required if employees are employed, insurance specific to the trade may be advisable to offer protection from claims, public liability insurance may be required and is often essential in retail trades particularly if that trade also requires a local authority license.
Payroll and Employees
The business set up status of a sole trader is not affected if employees are engaged as the sole trader is still self employed. If employees are engaged then the sole trader needs to register with HMRC as an employer and operate a PAYE scheme which involves calculating and deducting income tax and national insurance from employees gross pay, incurring the employers national insurance contribution, issuing payslips and keeping records of all employees and deductions. Income tax, employees and employers national insurance can be paid to HMRC quarterly if under £1500 per quarter or monthly if exceeding this level.
Networking with business groups
There are numerous groups a sole trader may consider joining for more information on how to start up business. The government organisation Business Link offer free advice on many issues and may have new business grants available for new start ups. Business Link also has contacts with local enterprise agencies who offer support. The Federation of Small Business charges an annual subscription, hold regular local meetings and provide a range of discounted services to small businesses.