Setting up as sole trader

[MikeJSmith]

Hi all,

I’m looking for some advice on how best to set myself up to do some consultancy work for the next 3-6 months, and maybe longer.

I was made redundant earlier in the year and will hopefully be starting some consultancy work in the next couple of weeks.

I think sole trader is the way to go. I already do yearly tax returns but I think I would still need to inform HMRC.

My questions are:

- As an individual consultant , is sole trader the best route?
- Can I just start the work, use an existing bank account and deal with everything else in the first couple of months, or do I need to have stuff in place beforehand?
- I’m thinking the best route would be to get an accountant / accountancy firm to help within the first month, so I can get income / expenses / profit sorted and to help determine how much money to put aside for tax & NI.
- Does anyone have accountancy firms they would suggest? I’m guessing a simple online type setup would be fine for my needs.

I’m sure there’s some good experience on this forum , so any advice appreciated.

Cheers,

Mike


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[higham5]

My suggestion from my experience having been a sole trader for 3 years is
1) Sort out your public liability insurance, which will ask turnover type of business ect
2) Draft you business terms and conditions, most companies look favourably on small one man business, so you are likely to be paid 30 days end of the month.
3) whether you need an account is based on your diligence with your records and your understanding of business metrics balance sheet p&l etc. I went to a new business start up workshop spread over 2 days FOC. They gave you p&l and balance sheet templates which I used for three years.
4) Get receipts for everything
5) Decide how you will fund your vehicle travelling.
6) As a consultant I had limited purchases eg you dont buy wood or nails, but I had lots of incidental expenditure, internet/equipment/ ppe.

Lastly I ran a business bank account as it keeps personal and business separate, usually they offer 18 months free so shoul easily cover your original expectations
Im sure there will be more experienced folk who will chip in or correct me

[MikeJSmith]

Thanks for that, it’s really useful.


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[Peck]

I would just check that the company you will be consulting for will accept you as a sole trader. Two of my clients insisted on me setting up a limited company for tax reasons (which then opens up the IR35 can of worms).

I would say if they are accepting of you being a sole trader then it’s definitely an easier and cheaper route to take. Good luck!

[SlipperySam]

The two things I would definitely do before starting would be setting up a business account and link it to any of the decent web based accounting software; Sage, Xero etc. It makes things so much more simple and whilst it's not the end of world doing it retrospectively, it's just easier in the long run. "Making Tax Digital" means spreadsheets won't be enough on their own soon. You may as well get set up correctly from the off.

Speak to a few local accountants and once you pick one find out which accounting software they tend to use the most. Again not essential but will ensure things run smoothly in the future.

[xxnick1975]

Depending on what you're doing the comment about liability insurance is very important.

If your consultancy could lead the client to make a financial loss and you could be sued, as a sole trader all you personal assets are in play.

Obviously very often the nature of the work will never lead to this so might not be a concern.

If it is, PI insurance and consider a Limited Company. This may also be a tax efficient route, with lower tax rates on dividends etc.

A small firm of local accountants will sort you out.

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[beechcustom]

Two of my clients insisted on me setting up a limited company for tax reasons (which then opens up the IR35 can of worms).

You can get caught up in IR35 as a sole trader. One of my schools put me under IR35 and it caused a major headache. Eventually my accountant successfully contested it.

[MikeJSmith]

Thanks all. I hadn’t considered insurance at all, but it is something I will look into.

The advice appears to be to get some accountancy advice and go from there. I’ll look into some local firms.


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[higham5]

Thanks all. I hadn’t considered insurance at all, but it is something I will look into.

The advice appears to be to get some accountancy advice and go from there. I’ll look into some local firms.
A

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Taxassist are a chain / franchise operation. Back in 2017 they were doing free 30 min consultation, then from memory were offering a £300 bundle which included completing your tax return for sole traders.

[Mj2k]

I would just check that the company you will be consulting for will accept you as a sole trader. Two of my clients insisted on me setting up a limited company for tax reasons (which then opens up the IR35 can of worms).

I would say if they are accepting of you being a sole trader then it’s definitely an easier and cheaper route to take. Good luck!

That was my experience also with companies - and VAT registered.

[deepreddave]

Definitely use a separate account, doesn't have to be designated a business acc by the bank, as that keeps things neater and means you don't have to provide your private spending details should HMRC ask to see your business records.
Issue invoices and keep receipts, if you can't get a receipt make a note and pay as much as possible by card.
Use a qualified accountant (which might rule out TaxAssist), a decent small local firm will suffice and probably save you their fees in minimising your taxable profit and hassle.

[Peck]

You can get caught up in IR35 as a sole trader. One of my schools put me under IR35 and it caused a major headache. Eventually my accountant successfully contested it.

I didn’t know that - what a pain! Thanks

[Thewatchbloke]

As has been said, use a separate bank account but it doesn't have to be a business one. I use an ordinary current account solely for business which attracts no account charges whatsoever, it also integrates seamlessly with my FreeAgent accounting software. I also use an accountant even though FreeAgent is on HMRC's approved making tax digital list, but her charges are negligible as I've done most of the work by updating Freeagent daily.

Never underestimate the amount of time that keeping the books straight can take, using the aforementioned (any decent digital package will do) cut my end of year returns from almost a weeks work to just sending an email!

[MikeJSmith]

Thanks again for the posts; all very useful info.


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[Adge]

My advice:

Limited company preferred
Separate bank account
Hefty PL insurance (more than you think you'll need, it will hardly cost more)
Receipts and document everything
Anything you agree should be in emails not on the phone! (Or at least confirmed via email)
Ty to get payment terms less than 30 days, otherwise you're subsidizing their cash flow for the sake of yours

[Bravo73]

If you haven’t got one already, I (plus countless others) recommend Starling for your business account.

It is generally free (most high street business accounts still charge) and it is run off an app on your ‘phone.

https://www.starlingbank.com/business-account/

[Tony]

You need the advice of a proper accountant from the start. If you don't invest in this it will cost you more eventually.

[Adge]

You need the advice of a proper accountant from the start. If you don't invest in this it will cost you more eventually.

This is probably the best advice here... For a small business annual accounts help from an actual accountant must be something like £600-1000 and they will definitely save you more than that in the first year (if this is an actual business with decent turnover and not just a hobby business)

[MikeJSmith]

Yes, it does look like an accountant is the way forward.

I’m having a call with the hiring company later today so should know whether it’s a goer or not later this week. I don’t really want to incur a load of costs unless this is going to work out but if it does, the contract would be worth the investment in an accountant etc.

In the meantime I might call a couple of local accountants and see what they are like.


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[Tony]

Yes, it does look like an accountant is the way forward.

I’m having a call with the hiring company later today so should know whether it’s a goer or not later this week. I don’t really want to incur a load of costs unless this is going to work out but if it does, the contract would be worth the investment in an accountant etc.

In the meantime I might call a couple of local accountants and see what they are like.


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Where are you based?

[MikeJSmith]

Near High Wycombe in Buckinghamshire


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[Tony]

Near High Wycombe in Buckinghamshire

Okay. My wife's an Accountant but well outside your catchment area.

My one tip: get an Accountant, not just someone to do your books.

Good luck with everything.

[Mj2k]

Don't pay the accountant to set up a Ltd company for you if needed, as it really is idiot proof and very quick to do yourself.

As per the prior poster, HUGE difference in someone doing your books, vs being an accountant and managing taxes properly. My first year I went with the wrong company, and I was bringing my own suggestions to manage my tax more effectively. We parted company very swiftly. Oh he was also unable to use email, or anything digital it appeared, very scary!

[MikeJSmith]

Ok, I’ll do the Ltd bit myself, already looked online and it does look straightforward.

Will definitely get an accountant as I want someone proactively managing the tax efficiency.

If I needed to buy equipment (eg a laptop); do I need to wait until I’ve got the company and bank account set up? How do I buy stuff from a company account? I guess the account will come with cards, but then I need to wait until I get them? Sorry for the naive questions! Maybe I need an accountant pronto!


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[higham5]

Ok, I’ll do the Ltd bit myself, already looked online and it does look straightforward.

Will definitely get an accountant as I want someone proactively managing the tax efficiency.

If I needed to buy equipment (eg a laptop); do I need to wait until I’ve got the company and bank account set up? How do I buy stuff from a company account? I guess the account will come with cards, but then I need to wait until I get them? Sorry for the naive questions! Maybe I need an accountant pronto!


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If you need a laptop then buy it , its not critical it comes from your business bank account but it is important you get receipts as it will form part of your P& L account. Bus accounts come with cards and dont take long to set up so get a wriggle on with that. Lastly have you done a business plan yet and cash flow forecasts? , since some banks will want to see that as part of your bus banking application

[David_D]

Ok, I’ll do the Ltd bit myself, already looked online and it does look straightforward.

Lots of people have their partner and kids as shareholders so they can take dividends. Not sure of the ins and outs but it’s definitely something that is better done at the outset.

[Tony]

If you need a laptop then buy it , its not critical it comes from your business bank account but it is important you get receipts as it will form part of your P& L account. Bus accounts come with cards and dont take long to set up so get a wriggle on with that. Lastly have you done a business plan yet and cash flow forecasts? , since some banks will want to see that as part of your bus banking application

Just get a Tide account. No faffing. Your Accountant will advise you about things like that.

[blackal]

Sure, open a business bank account, but you will get a very low limit credit card on that. (Ltd Co)

I just used one of my personal cards, paid for from the business account, and stuck a label on it to remind me that it was the ‘business’ card. It’s just a one-man consultancy after all.

My bank who I had been with for 30yrs, had mortgages with etc - would only give me £1,500 credit limit, which would hardly cover a plane fare!

[Mj2k]

Yes the first few months of cash flow are painful. It is all going out (I used my own cash to invest into the business and withdrew once I had a decent balance).

There are loads of guides online about expenses, mileage etc. I used to charge my clients my mileage to their offices etc, or if they wanted me to see customers. All comes in handy when you can then withdraw that back as your travel expenses.

To think one company paid me 50p a mile to drive from Reading to Leeds and back for a 1hr meeting & also paying me my day rate on top. They were good days!

Best of luck with the new venture.