What is the difference between a sole trader and a small business?
Starting a small business can be very rewarding to your level of discipline as well as your pocket. There is a lot of information about creating your little empire, but with this information comes a difference that defines your business’s purpose and the direction that you should take with it. You can choose between a small or sole trading business if you intend to work by yourself without registering your business as a company. There is also the difference between a small business and a company, which will help you understand the terminology and which category you would fall under as a business
What is a sole trader?
You can consider yourself a sole trader when you have made over £1000 and would like to register your little business for more benefits. You will register your tax returns under PAYE, which you can do yourself. Some of those benefits could simply include working with other more prominent companies who require solid tax confirmation before they trade with smaller companies. As a sole trader, you can register your business idea as a business that you solely operate without any additional staff or business partners. To define the sole trader meaning, you would need to consider the tax registration you fill in. Your registration will say that you are a sole trader, but you will not have any certificate to say that you are registered as a sole trader, unlike a limited company. Limited companies also have shareholders, directors and staff, so they are a company and not a business. Your business needs to be registered as quickly as possible when you have accumulated stock or have established a customer base. The great thing about registering as a sole trader is that you do not have to have a name registered for your business before being allowed to trade. You could even use your own name as the name of the business. You would, however, need to register the name with Companies house so that no one else uses or registers their business under the same name.
When it comes to your tax payments, it is best advised to enlist the help of a qualified and experienced tax professional. There are online forms or templates that you could use, and you can do a lot over the phone, but if you would like to submit tax claims for more than just your receipts, you will be better off asking for advice from a tax professional. There are many loopholes in tax registration as a sole trader where your returns’ value could increase substantially.
Small business self employment
Self -employment and small businesses are the exact same thing. Small businesses are “sole individuals” who are working under self-employment. It is so simple. As a small business you would pay your tax as personal tax and could use the help of a professional to assist you, but in most cases, the forms are online, and you can call for assistance from HMRC. You are responsible for the success or the failure of your business, and you won’t pay your tax through PAYE but instead as a self-assessment.
As an individual working under the “small business” title, you do not have to earn a particular amount. You can still qualify for many of the benefits that unemployed people can apply for, like grants or scholarships. One of the most significant benefits of being self-employed is that you can file claims against your expenses to significantly reduce the amount of tax you need to pay at the end of a tax year. The dates work the same for everyone. From a limited company to a sole proprietorship, so ensure that your paperwork is returned. You do not need to register a name with Companies House or even register a name at all.
Using the help of an accounting firm could help you to get all the necessary paperwork in order if you ever would like to register as a sole trader in future. It might not seem necessary, but when your business starts to grow and plan to expand, your registration and benefits options will increase, leading you to better opportunities.
There is no set label for sole traders or self-employed individuals as the HMRC recognises all sole traders as self-employed until they decide to register as something else. Many people who work for themselves forgo the registration because simply sticking to their name as the business name and not spending any additional money on registrations, websites, or unique email addresses are more beneficial. What you would like to do is at your discretion. All you need to do is make sure that the HMRC knows.