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For some professions, becoming a sole trader is a much more common option than being a limited company contractor if you’re self-employed. This is often the case for skilled trade contractors such as electricians, plumbers, welders, joiners, and mechanical fitters to name but a few.
As these professions tend to deal directly with clients rather than going through agencies or recruiters, there is often no requirement to operate as a limited company and so being a sole trader is a simple, straightforward way of doing business.
If you are currently setting up as self-employed in your trade and are deciding if being a sole trader is right for you, you first need to understand how being a sole trader is different to being a limited company contractor, how you get set up, and what you need to get going. As luck would have it, Kingsbridge has a blog for that.
What is a sole trader?
Being a sole trader is a way of being self-employed where the individual themselves is the business. In this respect, it is the simplest method of being self-employed as you don’t have to deal with the management and administration that comes with running a limited company.
However, it does mean that you as the individual are personally liable should you make a loss. It’s also considered less tax-efficient than operating as a limited company. It does, though, have the benefit of you not having to consider IR35, and it gives you exactly the same levels of flexibility as any other means of self-employment.
This is versus being a limited company contractor where you don’t hold personal liability for losses and you are more tax-efficient, however, you have a lot more paperwork, your company accounts must be public and you do, in fact, need to deal with the complications of IR35.
If you want more detail on the differences between being a sole trader and being a limited company contractor, we’ve gone into it in more depth on the Knowledge Hub, but here is a quick rundown of the pros and cons of being a sole trader.
Sole trader pluses:
- Very easy to set up (more on that in a moment)
- Little admin
- You keep all profits after tax
- You have complete flexibility and control
- No IR35 to deal with
Sole trader negatives:
- Personal liability
- Less tax-efficient
- Some potential clients prefer limited company contractors
If you consider all of this and decide being a sole trader is right for you, what next?
Register with HMRC
The first and most important thing you need to do when setting up as a sole trader is register with HMRC for Self Assessment. You need to do this if/when any of the following apply:
- You earned more than £1,000 from self-employment in the most recent tax year
- You need to prove you’re self-employed e.g., to claim funded childcare hours
- You want to make voluntary Class 2 National Insurance contributions (NICs)
You can register for Self Assessment with HMRC here, then it’s a case of keeping records of your incomings and outgoings before submitting a Self Assessment every year.
Make a note of those tax year dates
There are key dates in the HMRC calendar every year and it’s worth taking note of them. The big ones to remember are 6th April, when the new tax year begins, and 31st January which is the deadline for Self Assessment tax returns to be submitted.
However, there are many more throughout the year – particularly relating to dates when penalties come into effect for not paying outstanding liabilities.
If you want to add key tax year dates to your diary, you can find them on the Knowledge Hub.
Get your insurance set up
One thing that’s consistent whether you’re a sole trader or limited company contractor, is you have to have business insurance that’s sufficient for your needs. Kingsbridge’s tradesman insurance is vital for skilled trade contractors as it protects you should things go wrong. For instance, should a mistake on the job cause damage to your client’s belongings, your tradesman insurance will have it covered.
It’s a safety net, meaning you don’t have to pay out large sums of money to cover compensation or legal costs should an accident happen.
Our tradesman insurance includes:
There is also the optional add-on of occupational personal accident cover, which gives you a weekly sum of up to £500 for up to a year should you be injured in the line of your work. There is also a lump sum pay-out in the case of permanent disablement or death.
To find out more about tradesman insurance, or to discuss the levels of cover you require, you can get in touch with our friendly, expert team today. Alternatively, you can get a quote online.
This article is for information purposes only and should not be seen as financial advice.
