When you have made the decision to set up and run your business, the next thing that you need to decide is what form that it is going to take. This is something that has to be carefully thought about before taking the plunge. Getting this area right means striking a balance between simple administration, safeguarding business (as well as personal) assets as well as determining how you will be taxed and regulated by the appropriate authorities.
The next few articles will deal with the different forms that your business can take. Today, we start with the sole trader. Just a short note of caution here before I continue. Although what I write is of universal application, there will be some areas which are peculiar to the United Kingdom. So when commenting, please feel free to ask questions or make observations about your own particular country. I am always keen to find out how businesses are set up and run in other countries of the world. So are you sitting comfortably? Then I will begin…
Setting up as a sole trader is the simplest way to establish yourself in the business world. Doing it this way is quick and easy and there is very little administration, red tape and form filling to do. As a sole trader, you are responsible for every business decision, but the biggest disadvantage of setting up like this is that you are personally liable for any debts and losses that the business incurs. You could potentially lose your possessions or even your home. So take care when deciding to go down this route.
Because you are responsible for everything that goes on in the business, you must be careful to make careful note of expenses (the company’s incomings and expenditure) and keep receipts so that when it comes to taxes, you have the financial information you need. Now in the United Kingdom, the term ‘sole trader’ is a bit of a misnomer. Being registered as a sole trader does not mean that you are not allowed to take on employees. You can do so. But you will need to make sure that you are aware of employee rights in terms of taxes, national insurance, wages etc. I will look into this area in later articles.
If you have decided to become self employed and become a sole trader in the United Kingdom, you must register with HM Revenue and Customs (www.hmrc.gov.uk) within 3 months. If you do not (and have no extenuating circumstances for the delay), you may be fined which is not the best way to get you business started!!
So there you have it, the start of my business mini-series. I hope you find it interesting, as they say ‘knowledge is power’ and I could not agree more. Any comments and/or feedback is welcome and actively encouraged.
