Sole Traders in the Trade Industry: Kick start your journey

We will cover:

• How to choose your trading name
• Taxes and legal obligations
• Registering with HMRC for Self-Assessment
• The Construction Industry Scheme
• The importance of a business bank account
• Accounting and record keeping
• Insurance
• Business finance
• Budgeting and financial planning
• Invoicing and payment terms
• Self – discipline
• Professional advice

1. How to Choose Your Trading Name

When deciding upon a business name for your sole trader business, you can trade using your own name or come up with a branded name that suits your business.

You have a lot of flexibility when choosing your business name, though there are a few restrictions to note.

• You want to avoid naming your business similar to your competitors
• To not include the words ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘Public limited company’ or ‘PLC’
• Make sure the name is not an existing trademark
• That it does not contain words associated with the government, unless consent has been granted

If you wish to choose a branded business name you have created, you will need to include this as a ‘Trading As’ name within any official documentation. You can use ‘T/A’ for short. For example, say your name is Joe Bloggs, but your business name is ‘JB Plumbing’. On documents such as invoices and Tax Returns, you will need to write ‘Joe Bloggs T/A JB Plumbing’.

Companies House and The Trademark Register are useful for checking if any names you have in mind are not already being used. (insert links)

2. Taxes and Legal Obligations

You will be responsible for Income Tax on your business profits. Ensure you are aware of Tax Deadlines and what types of expenditure are eligible deductions you can claim to minimize your Tax liability.

3. Register with HMRC for Self-Assessment

3a. Register for Self-Assessment

You will need to submit an annual Self-assessment Tax Return and pay relevant taxes . Therefore, you must register as a sole trader as soon as you set up your business.

When you register for self-assessment online, you will need to provide some basic information including:

• Full name
• Date of birth
• Address
• National Insurance number
• Phone number
• Email address

You will need to register for both:

• Self-assessment
• Class 2 National Insurance

To do this, visit www.gov.uk/register-for-self-assessment where you will be able to fill out the required questionnaire to register as a sole trader. You will need a Government Gateway user ID and password to sign in. If you do not have a user ID, you will be able to create one at this stage, at which point you will have to verify your identity.

Make sure you keep this safe as if you lose it this will create extra work later on.

The Government Gateway is a central system where you can register to use online government services such as CIS (Construction Industry Scheme), VAT and PAYE.

3b. Add Self-Assessment to your online services

You will then need to add Self-Assessment to your online services on your Gateway Account. Log into your account, select Add a Service and follow the steps to request access to Self-Assessment.

You will receive your UTR number (Unique Taxpayers Reference) and activation code in the post (this can take up to 10 working days). On receipt of these items, log back into your Gateway account to activate Self-assessment using the code.

Please remember – there are only a few people who need to see your UTR number. You should only share it with your accountant or bookkeeper, financial advisor, contractors you are subcontracting for and HMRC.

4. CIS – The Construction Industry Scheme

This is a scheme that applies to self-employed workers and businesses in the construction industry. Under the scheme, tax is deducted from payments and paid over to HMRC. If you are planning to subcontract you will need to register with HMRC for the CIS scheme.

• How to register?

You can go online to your Government Gateway  www.gov.uk/sign-in or you can call HMRC on the CIS helpline on 0300 200 3210 and give your UTR number and personal details and register for CIS.

• Add CIS as a service to your Government Gateway account following steps 3b. above
• When you are hired by a contractor you will need to give them your registered name, UTR number and NI number so they can verify that you registered for CIS. Upon confirmation, they will deduct 20% tax from your invoice (excluding VAT and materials). These deductions count as advance payments towards your Tax and National Insurance. When you complete your annual Tax Return, you can credit any CIS tax deducted. If you are not registered, they will need to deduct 30% so it is worth making sure you have everything in place from the start to avoid extra deductions.
• You can apply for Gross payment status if your annual income is £30,000 or over. This means the contractor will not make deductions from your payments and you will pay the Tax and National Insurance at the end of the financial year. If you have gross payment status, HM Revenue and Customs (HMRC) will review your business every year, to decide if you can keep your status. You must be on time with your tax returns and payments to keep your gross payment status.

5. The Importance of a Business Bank Account

Having a separate business bank account to your personal account is a fundamental step in ensuring the financial health and professionalism of your business. Mixing personal and business funds can lead to confusion and extra work.

A dedicated business account helps to maintain clear financial records. You can easily track income and expenses relating to your business, making tax preparation simpler and more accurate.

6. Accounts and Record Keeping

Maintaining accurate financial records is crucial. We would advise to consider using an accounting software, it’s not a must at the moment but it can make your life a little easier. Here at Perfect Balance Bookkeeping, Xero is our software of choice but there are many other software options available. Accounting software allows you to create and send invoices, track payments, set rules, set up automatic bank feeds and submit your VAT returns online (which complies with MTD (Making Tax Digital)).

There are also add-ons and external applications that are available to upload invoices and receipts for your expenses digitally. Xero have a sister application called Hubdoc that allows you to upload receipts via drag and drop, email or take photos via the app. You can then enter the information onto Xero from there. This eliminates the need to print your documents and as these attachments are also kept within your software you no longer need to keep paper copies! Hubdoc is free for Xero users.

7. Insurance

Consider various insurance options, including liability insurance to protect your business and yourself from unforeseen circumstances and potential liabilities. We work with Tim Cole from Feel Financial who specialises in all types of business insurance.

8. Business Finance

Do you need to think about a loan?

Determine your start up capital needs. Calculate the cost of equipment, tools, initial marketing, licences and insurance. Many sole traders begin with personal savings, but you may consider loans or grants designed for small businesses in your trade industry.

9. Budgeting and Financial planning

Create a detailed budget for your trade business. Outline your expected monthly and annual expenses, including rent, utilities, insurance, supplies and marketing costs. This budget serves as a roadmap for your financial decisions and helps to avoid overspending.

10. Invoicing and Payment terms

Establish clear invoicing and payment terms for your customers. Create professional invoices with itemised details, payment due dates and accepted payment methods. Consistent invoicing ensures you are paid promptly and helps with cash flow management. Follow this link to find out what you need to show on each invoice to ensure you comply with HMRC’s requirements.

11. Self – discipline

Working as a sole trader requires self-discipline. Set schedules, stick to deadlines and manage your time effectively to maintain a healthy work-life balance. For more advice and tips to stay ahead read our ‘Top Tips! Let’s get organised’ blog.

12. Seek professional Advice

If you are unsure about any aspect of your business, do not hesitate to seek professional advice. Consult with lawyers, accountants, bookkeepers and business mentors to ensure you are on the right track.

With the right strategy, determination and strong work ethic, you can successfully launch and run your own business. As a sole trader, mastering the financial side is critical for long term success. By carefully managing your finances and staying compliant with tax and legal obligations, you will be well prepared to build a profitable and sustainable business.

This guide serves as a roadmap but remember, your unique path will reflect your individual goals and aspirations.

Good luck on your journey as a sole trader and don’t forget to let us know if you need any help!