If you're working alone, with limited financial liability, setting up as a sole trader may be an easier option than starting a limited company. Andy Oakley of Bath & Bristol Damp Proofing explains why he chose sole trader status
"I started out as a sole trader more than a decade ago. I'd already been to college to do an NVQ level three apprenticeship, and then I worked for a firm for two years. Because the work was subcontracted, I was already registered with HM Revenue & Customs [HMRC] as self-employed before striking out on my own.
"To register, I had to give HMRC my name, address, date of birth, nature of my work, start date and National Insurance number. Afterwards I went to the local tax office to give them proof of my identity.
"It's dead easy to start up as a sole trader, plus, you can start work straight away - unless you need to apply for a licence.
"I became a sole trader rather than setting up a limited company because it's easier, cheaper and there's less admin to do. Plus, my personal financial liability was limited, so I didn't need the protection being a limited company grants.
"Even as a sole trader, I could take on staff. Sometimes I asked other self-employed tradesmen to help out, if a job was too big for me.
"I had some inheritance money, so I used that for initial advertising and to buy insurance, a van and some tools. I had to get public liability insurance, but I also took out accident insurance, which covered me if I had to take time off. Obviously, I had to insure my van, too..
Sole trader responsibilities
"As a sole trader, you're personally responsible for debts if your business goes under. You need to keep a constant stream of work coming in and put money aside as back-up in case the work dries up.
"You need to keep records of jobs you work on and how much you've been paid, which is vital when it's time to work out how much tax you own. You should keep records as you go along, as well as retaining sales receipts as proof of all purchases the business makes.
"I paid an accountant to fill in my self-assessment form. I didn't have the time or knowledge to fill it in myself. I could then concentrate on what I'm good at - plastering.
Adverts and online marketing
"I advertised in directories such as the Yellow Pages and Thomson. You pay a fee for the year and they sort out the ad for you. The biggest mistake I made was spending too much on a big advert in the Yellow Pages. Having smaller adverts in more directories and sending out leaflets locally would have been more effective.
"Most of my business comes from word-of-mouth. I started out doing jobs for friends of the family, they then recommended me to people they knew, and the work has just grown from there. "
Andy's three key lessons
- Consider all your options when deciding which form of business to set up.
- If your personal financial liability is small, becoming a sole trader is easier and cheaper than setting up a limited company.
- Put money away as you go along, then you won't have to panic when you get your tax bill.