Can two people work together to run a business as a sole trader? This may be a question you’ve thought about or prepared to consult.
In this issue, we will answer whether it is feasible to operate a sole trader in a joint venture, and the details that need to be paid special attention to when becoming a sole trader.
Definition of the Sole Trader
Sole traders are individuals who own and operate their own business.
As a sole trader, you have absolute control, you can spend as much as you want and control a relatively simple business model.
Sole traders usually do not have directors and shareholders to invest, and are only sole traders to raise funds in their personal capacity.
Likewise, they does not have multiple partners sharing responsibilities and rewards.
So if there are two or more people can run a partnership and achieve joint management.
Sole Traders Still Need to be Aware of:
- Although sole traders have largely higher discretionary powers, they still need to declare and pay taxes to HMRC.
- In order to keep your bills clearly visible, you’d better separate your personal and business accounts.
- Any transaction requires strict adherence to business rules. If your name does not appear on business documents, the company name must be included.
- You can hire other employees. Sole trader means that you take full responsibility for your business, even if you hire someone else to work for you.
- Consider whether you need to complete Value Added Tax (VAT) registration, depending on your business status (click here for details).
Other Responsibilities of A Sole Trader
As a sole trader, you are also required to keep records that comply with standard accounting practices.
Here you need to pay attention to the corporate annual report and file self-assessment tax returns regularly to maintain good tax records.
Sole traders who employ other employees should sign up for PAYE and pay into the pension scheme.
If your business is value-added tax (VAT) registered, you need to pay extra attention to the special dates and file a return to complete the payment.
I am a sole trader, when should I register with HMRC?
You must register with HMRC as soon as possible after starting your business. If you register after October 5 after the tax year in which you started trading, you may be fined. If you started as a self-employed person for the 2022-2023 tax year, you must register by October 5, 2023.
Under what circumstances do I need to register for VAT?
If you expect your business to earn more than £85,000 a year, you must register for VAT.
How long do I need to keep financial records?
To ensure future audits are initiated by HMRC, you must keep financial records for at least 5 years.
Can I close my business?
You can terminate your business as a sole trader. You will need to notify HMRC that you have ceased being self-employed, finalize your income tax, pay Capital Gains Tax (if applicable) and offset the costs of closing your tax bill.