Register as sole trader before operating or grace/buffer period?

[AugAudio]

Hi, I'm in the pre-settup stage of starting my own consultancy.

Do I have to register as a sole trader before I start operating or is there a grace/buffer period?

I.e. Could I set up a website and start taking clients and contracts without registering as a sole trader first? Or do I have to register before I can start operating?

Also, what is the minimum amount of money at which I start paying tax, and is income tax the only tax to pay as a sole trader?

Thanks - J

 

[gpietersz]

Information here

 

[Szymon Krzyzanowski]

The deadline for registering for self-assesment is 5th October, following the tax year you started trading in. E.g. if you start trading as sole trader today (therefore in the 2020/21 tax year), you will need to register for self-assesment by 5 October 2021.

If your profits are under £1,000 in a year, you do not need to register. Taxes and national insurance depend whether you have any other income.

You pay income tax on anything above £12,500 at 20% (Basic rate)

You will need to Pay Class 2 National Insurance of £3.05 per month (£158.60pa), unless your profits are below £6,475 (in which case you can choose not to pay it).

Class 4 National is paid at 9% over £9,500 (2% of anything above £50,000).

Let me know if you have any questions. Good Luck.

 

[Scalloway]

If your profits are under £1,000 in a year, you do not need to register

If your turnover is under £1,000 in a year, you do not need to register.

https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income

 

[Szymon Krzyzanowski]

If your turnover is under £1,000 in a year, you do not need to register.

Ups. Thats what I meant; sorry. Great spot - Thanks!

 

[AugAudio]

Thanks very much Szymon, Scalloway, gpietersz. Wisdom much appreciated. I've read the govt info but I need to hear it in layman's terms.

Szymon:
- While I don't immediately have to register as a sole trader to start operating, do I have to register my company name so I can legally use it; e.g. to set up a website? Or is this included under registering as a sole trader, i.e. only once I start turning over £1k?

- Is the self-assessment income return the only paperwork I have to do, and is it manageable to do on my own? (Clue in the name presumably.)

Thanks again all.

 

[Scalloway]

do I have to register my company name so I can legally use it

There is no register of sole trader business names. You may be able to register it as trademark.

This is the form that you need to complete. If your annual turnover was below £85,000 you can just put your total expenses in box 20. Just 3 lines needed -Sales, expenses and profit,

 

[Szymon Krzyzanowski]

There is no register of sole trader business names. You may be able to register it as trademark.

This is the form that you need to complete. If your annual turnover was below £85,000 you can just put your total expenses in box 20. Just 3 lines needed -Sales, expenses and profit,

This!

Some people incorporate a dormant company to ensure their trading name is not taken by somebody else (useful if your plan is to eventully trade as a ltd company.

 

[AugAudio]

Okay, interesting - I wasn't aware of this. How would I go about this? / Do you have a link?

Sorry to keep asking questions - I'm a real newbie and you're a font of knowledge. Two more if that's okay.

- My plan long-term is to establish a Ltd company - is it easy to switch from sole trader to Ltd company?

- Can I subcontract as a sole trader and do they have to be sole traders/HMRC-registered or can I ask anyone you freelance/subcontract for me? Also, should I draw up a contract and what should that be/look like/should I consult a lawyer?

Thanks kindly both.

 

[Scalloway]

Register your company

https://www.gov.uk/limited-company-formation/register-your-company

File dormant accounts

https://www.gov.uk/government/publications/file-your-dormant-accounts-aa02

is it easy to switch from sole trader to Ltd company?

It is relatively easy, it just depends on what is being transfered.

Can I subcontract as a sole trader

If you mean subcontract to other businesses then yes.

can I ask anyone you freelance/subcontract for me

Anyone can subcontract to you but they should already be self employed. You have to be careful that they are genuinely self employed. It can be expensive if HMRC decide they should be employees.

 

[AugAudio]

If you mean subcontract to other businesses then yes.



Anyone can subcontract to you but they should already be self employed. You have to be careful that they are genuinely self employed. It can be expensive if HMRC decide they should be employees.

I would like to subcontract to individuals, as it would free up time for me / mean I can take on additional contracts than if I'm doing them all myself. It's unlikely they'd be registered as self-employed. Is there a way to put them on a fixed-term contract or subcontract to people who aren't self-employed, but rather just doing the odd report or bit of analysis?

 

[Scalloway]

If they are working for you and getting paid then they either have to be self employed or on PAYE.

 

[Mr D]

I would like to subcontract to individuals, as it would free up time for me / mean I can take on additional contracts than if I'm doing them all myself. It's unlikely they'd be registered as self-employed. Is there a way to put them on a fixed-term contract or subcontract to people who aren't self-employed, but rather just doing the odd report or bit of analysis?

Basically if you want to control when they work, use your equipment, pay them a wage - then you employ them.
Some employ people on a zero hour contract, disadvantage of that is it works both ways - you contact them when you have work and they can decline it.

 

[AugAudio]

If they are working for you and getting paid then they either have to be self employed or on PAYE.

What is PAYE?

 

[AugAudio]

Basically if you want to control when they work, use your equipment, pay them a wage - then you employ them.
Some employ people on a zero hour contract, disadvantage of that is it works both ways - you contact them when you have work and they can decline it.

But I'm not really in a position to employ people - I want to subcontract to people who could do the odd contract. As well as not being right for my situation, employing on zero hour contracts means I have to pay national insurance etc?

Is there a way to subcontract to individuals, i.e. people who aren't also sole-traders? This is the thing that I'm aiming for.

 

[Scalloway]

There are two ways to hire people, either employees through PAYE or subcontractors who are genuinely self employed. If you don't deduct tax and NI from someone who is not genuinely self employed HMRC may penalise you.

You don't have to employ someone full time if you don't need them, zero hours contracts are appropriate in this situation.

 

[DontAsk]

What is PAYE?

Really? You are setting up a business and asking such a basic question.

Seriously. a few seconds with google would have answered that one, but I suspect you need to do a lot more research.

 

[Scalloway]

What is PAYE?

PAYE is the system used by the UK tax authorities to collect tax from employed people. The employer calculates tax and National Insurance due each payday and pays it over to HMRC on behalf of the employee.

There is more information here.

https://www.gov.uk/paye-for-employers

 

[AugAudio]

PAYE is the system used by the UK tax authorities to collect tax from employed people. The employer calculates tax and National Insurance due each payday and pays it over to HMRC on behalf of the employee.

There is more information here.

Fantastic, thanks.

So would you say that employing people on an as-needs basis is viable for a startup company+sole trader?

And I assume I should consult a solicitor to draw up the contract? Is it viable to use the same prefab contract with multiple zero-hours employees?