Sole Trader Setting Up - Help!

Fierybiscuits

Hi everyone 👋

I'm currently in the process of setting up as a sole trader alongside my part-time job, but I really am completely clueless on how to run a business and wondered if anyone could help. Sorry in advance for the long post.

I'll be offering consultancy, so selling services rather than goods. Future-proofing, if it goes well, then I might consider doing this full time but have no aspirations of growing beyond that and taking on employees. It's my understanding that, as a sole trader, I don't need to register with Companies House, just with HMRC for self assessment - is that correct?

I only have a single job on my books for March so I haven't yet registered with HMRC as the fee won't be above the £1000 threshold. I was hoping it would be simpler to start afresh from April, when I'll hopefully be more set up and will start marketing my business properly, but I don't know if I'm doing the right thing.

Whilst I don't have huge upfront costs, there's a few things that I need to get set up. If I were to purchase them now then presumably I wouldn't be able to claim them as expenses if I'm not registering for the 25-26 tax year. Is that right? Can somebody explain to me, in super simple terms, how business expenses actually work? I still need other software, a couple of subscriptions, business insurance etc. and there's a few things I've already bought, like Microsoft Office for Business and the web hosting/domain name. Would that all class as expenses? What other things might be covered? What if I have to travel to sites/meetings, for example?

I'm obviously very new to this and don't really understand the financial side and how to complete a self assessment. How do I go about paying myself a suitable monthly salary out of any business income, but still ensure I leave enough to pay the tax bill at the end of the financial year? Is it worth paying for something like Quickbooks or would a simple spreadsheet suffice? If the latter, what information do I need to include?

Does it make a difference, tax-wise, that I'm also employed part-time? How does this work with other deductions, such as NI, pension and student loan repayments?

Finally, I'm trying to open a business bank account with Mettle but it asks me for proof of my business via a website URL or business document, neither of which I have yet. I've purchased the domain but the website is still in progress and I have no other documentation. Do I just need to pull my finger out and get it finished or is there any way around this? I was hoping to get the account set up ready to invoice my first client, but Mettle have a backlog of applicants so that prospect is getting further and further away. Is it generally ok to ask clients to pay into my personal account in the interim?

Apologies for what I can only imagine are very silly questions but, having always been an "employee," I feel a bit like a fish out of water at the moment! If anybody has any advice I'd be incredibly grateful.

Many thanks ☺️

PS: Bonus technical question for anyone that uses MS Office - I currently have a personal subscription that backs up all my photos and documents to OneDrive, for which I've used 75% of the storage. Having now purchased MS Office for Business, I have 1TB of OneDrive storage through that. Would you just re-route all your back ups via the business drive and cancel the personal one? OneDrive doesn't seem to allow you to select "created" folders to sync, they have to be under Documents, Pictures or Desktop, unless you're a lot more IT-savvy than I am and can create some sort of smart link. And my rudimentary attempts at syncing some to personal and others to business have failed. Do I just admit defeat and have everything going to the "cloud" under my business account? The twitchy part of me doesn't want all my personal photos on my business-named backup! Anyone more techy than me have a solution to this? 😄

MyRealNameToo

I'd question why you need the business version of Office, I've used the "family" version for years.

As a sole trader your default position will be cash accounting so things hit the P&L as the cash moves, ie you count a sale when you are paid not when the work is done, similarly operational expenses are incurred when they're paid not when you are committed to pay. Makes certain things easier but does effectively ring fence your self employed life from your wider earnings as its not the traditional way of accounting.

As a rule of thumb as a sole trader you can claim the proportion of any expenses that are dedicated to business use. So your business insurance is 100% for your business so it's 100% deductible. If you are installing Office on your personal computer and will use it for writing letters that arent business related then it may be 75% of the cost or whatever is appropriate.

There are some things that need special considerations like training and capital purchases (rare large purchases rather than smaller regular payments) but it doesnt sound you are planning either of those.

When you do your self assessment you will declare your self employed and employed life in different parts of the same form, the later includes what taxes you have already paid. In short it calculates the taxes due on the total, deducts off the taxes you have already paid and tells you what you owe. One thing that does catch people out, if you owe £1k or more then you will be asked to pay £1.5k before end of jan and another £0.5k by end of July. Then come the next Jan you pay the true up on the payments on account and 50% of the tax again as an advance payment of the next year… many dont know about payments on account and have been bad at saving for the tax and so only have the 100% owed not the 150% asked to be paid.

Dont use OneDrive for anything so can't help you on the tech side, just consider if you are using it for backing up personal photos then that means less of the fee is deductible from your business revenue.

Fierybiscuits

https://forums.moneysavingexpert.com/discussion/comment/81920327#Comment_81920327

Thank you for your help. Definitely some things for me to consider.

With regards the Office for Business…I did look at just a family subscription but I was after the professional email address, and there wasn't much price difference between the two so I went with the standard business. No idea if that was the right choice but hopefully it works out!

MyRealNameToo

https://forums.moneysavingexpert.com/discussion/comment/81920392#Comment_81920392

In the good old days the host for your website would have provided the email hosting and you could then have used Outlook or any other mail client to interact with that. These days bundling of web and email hosting isnt as common but would be surprised if adding email to web and keeping family/personal version wouldnt have been cheaper than web hosting plus M365 business

That said, I do get annoyed by some of the messages on Teams when using my business's personal log in -v- when using the teams accounts my clients give me. Not enough to pony up for business version myself but enough to moan.

twopenny

For technical issues ask on the Techie forum. Wide range of knowledge there.

I can't help with sole trader as my knowledge is out of date but it's not as difficult as you think.

LITRG

Hi Fierybiscuits

We have information on our website about self-employment and tax which you may find helpful: https://www.litrg.org.uk/working/self-employment including pages on expenses https://www.litrg.org.uk/working/self-employment/calculating-self-employed-profits/business-expenses-allowable-tax , and a self-employment guide covering all the steps to take if you are self-employed: https://www.litrg.org.uk/working/self-employment/self-employment-guide . Hope this helps and good luck with your new business