Registering as a sole trader is the most common legal structure new business owners opt for, mainly because it suits a low-cost start-up for self-employed individuals. If you start working for yourself, even before you’ve told HM revenue and customs, you will be classed as a sole trader. You run and own the business as an individual and personally retain all the profits after you’ve paid all running expenses and tax due. However, being a sole trader doesn’t mean you have to work alone, you can employ people. The “sole” part means you are the only person responsible for the business. A sole trader is a simple way to run a business; you send a tax return off each year, pay any income tax on any pre-tax net profit, pay Class 2 National Insurance on any profit up to £5,965 or Class 4 if it is over £8,060. If your turnover (not profit) exceeds £82,000 a year, it is mandatory for you to be VAT registered. A sole trader can be a great way to start off as your own boss, but it can be a risky path as you’ll be personally liable for pretty much everything, so assets such as your house, car, etc. will be at risk if your business goes badly.
If you’re interested in setting up a limited company, then check out our article on “becoming a limited company”.
To discover which legal structure suits you and your business best, please read our more in-depth articles. Once you’ve decided which way to go you may need to register your company, all of which is also explained. Choosing a suitable structure should be very simple even though it may require much thinking. However, one structure will always stand out as being the correct one.