Best resourceful checklist to help you succeed as a Sole trader

Do you want to do business as a sole trader ?

Interested but limited on information ?
We have all the answers to enable you make smooth take off with your future small business.

Sole trading is when you are the only owner of your small business and have complete control over the way it is run. The law makes no distinction between you as a sole trader and your business, and hence looks at you as one and the same.

Advantages

  • Your bookkeeping requirements are generally straightforward and you can prepare simple accounts which do not have to be audited

  • There are little red tape requirements for your sole trader business, making it simple for you to set it up.

Disadvantages

  • You will take personal liability for all business’s debts.

  • The business is most likely to cease when you retire or die, unless you plan your succession adequately.

  • You are entitled to a few social security benefits as per your personal merits.

  • Potential lenders look at you as a high risk borrower, so options for raising finance as a sole trader are limited.

  • It can be hard not having a business partner to share all or some of your responsibilities with.

Record keeping

No matter what type of small business you are involved with, it is always essential that as a sole trader, you keep proper accounting records which are sufficient to explain and track all of the transactions in your business.

Not only do accurate records provide information on how well your business is performing, they also provide the basis for the figures you enter on the self assessment tax return at year end.

This means that by law your figures have to be accurate and verifiable. Tax law mandates upon you to keep all the records you need to fill in a tax return. If you do not keep records, it is impossible to show what you have earned and what you have spent.

By law, you must keep all your records for at least five years forward from the latest date upon which you are sending your current tax return. However, it is up to you to decide how you keep the records.

Your Tax Office may decide to look into your tax return or claim. If it does, it may want to look at your sole trader records. It will save you time if you can show that the records you have kept are complete and accurate. It can also save you money as you can be fined $ 000’ for each year that you fail to keep proper records.

Many of us starting out as sole traders look at accounts and bookkeeping as a bureaucratic nightmare full of unexplained jargon and form filling. But its quite essential that you get to grips and used to record keeping both to comply with the law and, more importantly to be able to monitor the performance of your sole trader business.

The exact records you need to keep will depend on the types of income or gains, tax deductible expenses, personal allowances, other deductions and reliefs you put on your tax return or claim. Whatever records you keep, they should be good enough for you to fill in your tax return or claim accurately.

If you claim business expenses, you will need to keep the necessary records to back them up. For example, if you use part of your home for work, you will need to keep sufficient records to back up the proportion of heating and lighting costs that relate to your business and your private use.

On occasion you may not be able to obtain evidence (such as a receipt) for cash expenses, especially where the amounts are small. If this happens, recording is still important. Make a note as soon as possible of the amount you spent, when you spent it and what it was for.

As for your accounting records, you can either write them manually or computerize them. The best method will depend on the needs of your sole trader business. But overall if done properly, computerized bookkeeping can save you a lot of valuable time and effort and also help you produce better information.

Having opted to transfer details from your manual paper records onto a computer, you will still normally have to keep the original paper records unless you microfilm them or use an optical imaging system.

You do not have to print everything out, as long as the information in the original documents can be recovered from the computer and satisfies the other rules for record keeping.

As an alternative to transferring data yourself, there are many agencies who will do the bookkeeping for you and leave you to get on with running your sole trader small business.

Always remember to agree a fixed price and to ensure that you know exactly what you are getting for your money. This is especially important when the bookkeeping involves additional services such as payroll and VAT returns.

As your accounting guide, we want you to pay only as much tax as you owe Inland Revenue while remaining profitable. However, if you cannot show sufficient evidence of your income and outgoings, you could end up paying more tax than necessary.

Return from Sole Trader to Starting a Small Business.

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