What is a sole Trader? Definitions
A Sole trader is a Company that is usually run by one person. The person or business owner is liable for all the business operations. Setting up as a sole trader is relatively quick and easy.Â
A sole trader is a self-employed person who owns and runs their own business as an individual
A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity.Â
Pros and Cons of a Sole Trader
Advantages of a Sole Trader
- you are in charge (100% Control)
- you keep all the profits.
- start-up costs are low.
- it’s easy to change your legal structure
- you have maximum privacy.
- establishing and operating your business is simple.
Disadvantage of a Sole Trader
- you have unlimited liability for debts as there’s no legal distinction between private and business assets
- your capacity to raise capital is limited
- all the responsibility for making day-to-day business decisions is yours
- retaining high-calibre employees can be difficult
- it can be hard to take holidays
- you’re taxed as a single person the life of the business is limited.
How To Register as a Sole Trader
Each country has its own regulations and criteria when it comes to registering a sole trader. It is best that you research and conduct an intelligence study before starting a business in that particular study.
Below are a few countries tand their regulations with regards to registering a sole trader or sole proprietorship
UK
To set up as a sole trader in the UK, you need to tell HMRC that you pay tax through Self Assessment. You’ll need to file a tax return every year.
Your responsibilities
You’ll need to:
- keep business records and records of expenses
- send a Self Assessment tax return every year
- pay Income Tax on your profits and Class 2 and Class 4 National Insurance – use HMRC’s calculator to help you budget for this
You’ll need to apply for a National Insurance number if you’re moving to the UK to set up a business.
VAT
You must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.
Steps to take to register:
- Check if being self employed is right for you
- choose the name you want to trade under
- Check what record you will ned to keep
- Register for tax
United States
The process of registering a business as a sole proprietorship in the US can be done in a few simple steps
- Decide on a name for your Business
- Register your business DBA name
- Purchase a Domain
- Apply for an EIN (Employer Identification Number)
- Obtain Business Permits and Licenses
- Open a Business Bank Account
- Get Inusrance
South Africa
To register a sole proprietorship in South Africa you will be required to register the business with the South Africa Revenue Service (SARS) for purposes of tax returns.
To start a business, you will need the following documents:
- ID or passport of the applicant
- Power of attorney to sign all the related documents
The Sole Proprietorship Certificate registration costs between R 590- R990 (between EUR 30-50). With this certificate, you obtain a registered trading name and a personal tax number.
Australia
To set up as a sole trader in Australia you need to:
- register a business name.
- apply for an Australian Business Number (ABN)
- register for Goods and Services Tax (GST).
Uganda
To become a legal sole-proprietor in Uganda, you need to register with the Uganda Revenue Authority (URA) to obtain a formal trade name and Tax Identification Number, which are used for recognizing a legal entity.
To register as a sole proprietor with the URA, you will need the following documents:
- Copy of two identification documents e.g., driver’s permit, voter’s card, passport, employer ID, national ID, etc.
- A completed individual application form
Registering your company name is being done at the Registrar’s office, and it takes two days to complete and costs UGX 25,000 (EUR 5,6).
The following registration procedures include
- Paying registration fees at the given bank (around RHX 100,000 + RHX 2,500 bank charges)
- Registering at the Uganda Revenue Authority’s local office where you gain a Tax Identification Number(TIN), or registering online via URA E-Service
India
The following are the procedures for registering a Sole Trader in India
- Applying for PAN card.
- Find a name for the sole proprietorship business.
- Open a bank account in the name of the business.
- Obtain the Registration Certificate under the Shops and Establishment Act of the state in which the business is located.
- Register as a Small and Medium Enterprise (SME) under MSME Act
Documents Requried for a Sole Proprietor in India
- Aadhaar Card.
- PAN Card.
- Registered Office proof.
- Bank Account.
As a sole proprietor, you must file Income Tax Return annually. Also, you need to file your GST Return if you are registered under GST. A sole proprietor should also deduct TDS and file TDS return if liable for Tax Audit.
How To Pay Yourself as a Sole Trader
As a UK sole trader, you’re not directly employed and you don’t receive a salary or wage in the traditional sense. You can simply draw money from your business account to pay yourself as a sole trader. You pay yourself based on personal drawings from the business, and you pay Income Tax and National Insurance Contributions based on the profits your business makes.
For this reason, it is highly recommended that you use a separate bank account for your sole trader finances. it is important that you keep a record of any personal drawings you take from the business to pay yourself. This will help you to up to date with your bookkeeping and calculating profits. You’ll also need to put some money aside to pay your tax bill when you submit your annual
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