What is a sole trader?
A sole trader is a type of self-employment whereby you run your own business as an individual, keeping all of your profits after tax.
It also means that you will be personally liable for any losses incurred, unlike a limited company contractor for example, where you would be seen as a completely separate entity to your business.
What are a sole trader’s responsibilities?
As a sole trader, your general responsibilities will include:
- Keeping business records and proof of expenses throughout the tax year.
- Filing an annual self-assessment – your tax return needs to be filed and paid by the 31st of January each year.
- Paying Class 2 and Class 4 National Insurance (paid via your self-assessment tax return).
- Registering for VAT – should this apply to your businesses.
For more information on starting up as a sole trader, read our How to set up as a Sole Trader page.
Do all sole traders need to register for VAT?
No, not all sole traders have to register for VAT, but it is compulsory if the following applies to you:
- Your total VAT taxable turnover for the last 12 months was over £85,000.
- You expect your turnover to exceed £85,000 in the next 30 days.
- You or your business is based outside of the UK (regardless of your annual turnover).
It is also possible to register for VAT voluntarily – many choose this option as it does have its benefits, such as:
- Being able to reclaim VAT on goods and services purchased for business reasons, where you have been charged UK VAT.
- It lends credibility to your business – your clients and customers can potentially reclaim the VAT you have charged them on invoices.
- It can give you access to a wider range of suppliers and clients due to the fact that most will only deal with VAT registered companies.
How do I register for VAT?
The easiest way to register for VAT is by creating an online account.
You’ll then get a 9-digit VAT number (that you’ll need to include on all your raised invoices), information about when to submit your first VAT return and payment, as well as a confirmation of your registration date (known as your ‘effective date of registration’).
As a VAT registered business, some of your responsibilities will include:
- Adding VAT to the price of all goods and services at the correct rate (currently 20%).
- Keeping records of how much VAT you pay for things you buy for your business.
- Sending a VAT return to HMRC each quarter – this should include the amount of VAT you charged your customers and the amount of VAT you paid to other businesses.
- Paying any VAT you owe to HMRC.
We hope this page has answered some of your VAT questions. Our team of experts are available to answer any queries you may have, so drop us a line on 01442 795 100 or email Sophie at firstname.lastname@example.org.