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Become your own boss – Starting up as a Sole Trader

The most common start-up route, low-cost and simple, suitable for most new business owners.

23 May 2011. Google the question “Should I start my own business” and you’ll get over 1 billion results. It is a dilemma without an easy answer, and certainly one without a universal solution that applies to everyone.

The benefits of setting up a business are as numerous and compelling as are the disadvantages. On the one hand you are taking control of your working life, from what you do to when you do it. You are in a position where the harder you work, the greater the financial reward. Just as importantly for some people, you are free from the machinations of workplace politics, and can usually decide who you choose to deal with.

On the other hand, you face the great uncertainty of whether it will work out or not with the risk that business failure could well result in personal bankruptcy. If you do succeed, it will rarely come without years of mental and physical fatigue in dealing with the myriad of responsibilities the small business owner has, from employment legislation to health and safety regulations, from the pressure of driving sales to the absolute requirement you understand and control every financial aspect of your business.

Running your own business, whether as a sole trader or as a limited company is clearly not for everyone, and it is not a question we are able to answer for you. However the rewards of success are undeniably fulfilling, not just from a financial perspective but from a sense of self-fulfilment and achievement, and these articles aim to give you guidance on the legal aspects of setting up on your own.

Please note that these articles are for guidance only, and should you decide to take the plunge, we would firstly congratulate and wish you all the best, then advise you strongly to seek professional legal and financial advice at the earliest opportunity – and certainly before you actually start trading (or even quit your job). It is a false economy to skip on this as a mistake or oversight could cost you dearly in times to come. This is often not as expensive as many would think – for example you can get a small business accountant for £10-15 a week.

There are three basic types of business ownership in the UK – sole trader, partnership and limited company – and whilst this guide to getting started assumes you are taking the sole trader route, it is equally possible to start with a partnership or limited company and we shall look at their specific characteristics in the next article.

Read this article in Polish: Zostań własnym szefem

Read this article in Romanian: Cum să devii propriul tău şef – demararea activităţii de Întreprinzător Independent

Part 1 – GETTING STARTED

OK, so you’ve done it. You’ve had enough of toiling away for someone else, from taking orders from someone you likely had never met before starting to work for them, from having to ask for permission to go on holiday, from having to produce a doctor’s note if you take more than three days off ill. You have an idea that you think will make you money, and you know you have the determination and skills to make it work. You’ve resigned from your job… what next?

From the taxman’s perspective you are now self employed and you *must* register as such within 3 months of trading, or risk a fine from Her Majesty’s Revenue and Customs (HMRC). You can register online at www.hmrc.gov.uk or by calling 0845 915 4515. Legally speaking, there isn’t much else to do and you’re free to start trading. This simplicity is why most businesses start life as a sole trader.

Personal Liability

The single most important legal aspect of being a sole trader is that you are personally responsible for all debts incurred by your business, whether to your suppliers or to the government i.e. taxes. Should you be unable to pay those debts then your creditors, including the government, may take legal action to recover them from the sale of your personal possessions, including your house even if this is jointly owned with someone else. If you do share ownership of your home with a partner or anyone else, ensure that they understand and agree to you taking this risk.

Business Name

You may either use your own name to advertise your business or you may choose a ‘business name’. If you use a business name, you must include your own name in legible characters on:

• business letters
• written orders for goods or services to be supplied to the business
• business emails
• invoices and receipts issued in the course of the business
• written demands to your debtors for payment.

Basic legal documents

It is essential that the legal documents you use are professionally prepared. This is both for presentation purposes as the impression you give to your customers and suppliers can be vital to creating your reputation and driving sales, and to ensure that nothing important is missed out. Once something is in writing and signed, it can be very difficult and costly to break away from it.

This does not, indeed should not mean you have to pay vast amounts for a solicitor to prepare them from scratch. Many websites offer low cost standardised versions that you can adapt to your own business. Remember to be consistent in how you present your business name and logo – consistency is key to creating an aura of professionalism.

The exact requirements depend on the nature of your business but common ones include:

• Invoice – including payment terms and penalties for late payment
• Terms and Conditions of Sale – including refunds
• Terms and Conditions of Purchase – including guarantees of quality and standards
• Confidentiality agreement – also known as a ‘Non Disclosure Agreement’ or NDA, this allows you to discuss your business idea with someone without them stealing it for their own gain
• Agency agreement – allowing a third party to sell products for you in return for a commission (or indeed for you to sell products for someone else)
• Outsourcing agreement – for the provision of non-core business operations by an external provider, including service level standards, for example how quickly they must respond to an incoming call (usually within 3 rings).

Registering for VAT

Each year the government sets a figure known as the VAT registration threshold, currently £73,000. If your turnover over the previous 12 months exceeds this, or you believe your turnover in the next 30 days alone will exceed this then you must register for VAT.

If you do not exceed the threshold then you may choose to register for VAT regardless. The main benefit is that you can claim VAT back on the supplies that you buy, which can be critical to cashflow for a new business. Almost as importantly, it can give the impression to potential customers and suppliers that you are bigger than actually are – indeed, some companies/people will only deal with entities that are VAT registered.

There is an online tool developed in conjunction with HMRC for helping you decide if you should register for VAT – click here .

by Lukasz Kazmierczak
HAMILTON BRADY LTD
www.hamiltonbrady.co.uk
Tel: 0844 873 6081
E-mail: [email protected]
Address: Springfield House
Water Lane, Wilmslow, Cheshire, SK9 5BG

 

 

    Disclaimer: The above article is meant to be relied upon as an informative article and in no way constitutes legal advice. Information is offered for general information purposes only, based on the current law when the information was first displayed on this website.

You should always seek advice from an appropriately qualified solicitor on any specific legal enquiry. For legal advice regarding your case, please contact Hamilton Brady for a Consultation with a Solicitor on 0844 873 608.

Winners of 2011 Asian Awards to be announced on 18th October

Become your own boss – Partnerships and Limited Companies