sole trader laws

[NorthernTracey]

Hi all,
Can't see any threads on boring legal jargon so am starting this one.
I started as a Ltd company as it was what I'd done before with 3 partners but found being on my own it was such a financial burden and accounting nightmare that i recently decided to fold the company and carry on as either a sole trader or just a 'freelance framer' with workshop.
I want to keep tax and accounting to an absolute minimum. If I go as a sole trader will I have to have yearly accounts like a company? Do I have to register with anyone (taxman, council)?
If I go with being freelance can I still use a business name and will I have to pay business rates??
A lot of questions I know but my bank were bloody useless and I'm too skint/stingey to pay a business advisor LOL.

[The Crofter]

My experience so far as a sole trader.

Get an accountant (suggest you get one via a recommendation from a friend, fellow framer etc) - a good one is worth their weight in gold and fees are tax deductable. Accountant will register you with local tax office and you just authorise him/her to be your agent. Tax returns (and accounts) will go to the accountant, forwarded to you for signature and you send back for completion and submission. Rebate normally follows soon after if appropriate. Accountant will also advise what can be claimed such as percentage of heating if working from home, car mileage rates etc.

Keeping accounts is vital as many items are tax deductable but you must keep (dated) receipts/invoices. No invoice = no claim. Capital items such as equipment are now 100% tax deductable, accountant will explain the ins & outs.

You must register with National Insurance and pay class "x" rates per month (can't remember which but it is around £2.50 per week)

A business name will open many doors in the wholesale world and is, in my opinion, essential.

I still use my normal current account for day to day business transactions. Bank seem happy at present but may twitch is many cheques are being paid in each month. I do not pay business rates but have another account (business) with a bank that is geographically closer so will probably have to switch one day.

[prospero]

I have always worked as a sole trader. It's so long ago now since I started that I can't remember the setup protocols, but I do remember having a chat at the local tax office to thrash out a few details. As far as I know you don't have to register a business name with any official body. I have never used a accountant. I once asked a chap at the tax office whether I aught to have one and he replied that the accounts that I had been submitting were perfectly OK. He also pointed out that any 'irregularities' in the accounts caused by an accountant's incompetance come back on the trader, not the accountant.
As Pat says, a good accountant is worth his weight...etc, but bad one could land you in the brown stuff through no fault of your own.

I went for years just using a seperate personal current account for business. I wasn't until about 10 years ago that the bank twigged and suggested a pukka business account. Apart from a bigger cheque book I really didn't notice the difference.

[WelshFramer]

If you take a look at the Inland Revenue website you'll find a number of free booklets with advice about setting up a new business and what's involved.

Having an accountant is worthwhile. I got investigated by the Inland Revenue for the period covering my first year of trading. They visited my home to look through my accounts and other paper work. He found I'd been I'd made mistakes in the way I'd been doing my accounts and I ended up with a bill for around £800.

In my naive way I'd put my income in one column and everything I spent in another; subtracted one total from the other. That's not how it works! I did know about capital expenditure so hadn't included that but I didn't realise that I couldn't claim for a piece of moulding until I had turned it into a frame and sold it.

[prospero]

Accounting for raw materials can be tricky. A 10ft @ £1 ft length is worth £10. 10 1ft lengths aren't. I only velue full uncut lengths at full value. If if has has a bit cut off the rest is technically an offcut, even if you have only had 6" off it. I always value all my offcuts at £200. Another thing you can legitimately do is to write off old stock. Anything that is over 3 years old I value at zero. If you make ready made frames, don't value them at the retail price. Until they are sold they count as scrap.

[NorthernTracey]

Thankyou all for this advice. I have been stung in the past by a bad accountant so I know about that and am still paying for his mistake now!! I tired another guy but was not happy with him either, he saved me nothing and gave no good advice in fact he managed to land me in it too with that past mistake!!
I tend to get most customers through word of mouth (those are the ones I like) as I've been in the business a long time so really am wanting to look at the freelance aspect more and weather it is workable that way. My workshop is a rented unit.

[prospero]

A chap I knew was advised by his accountant to 'employ' his dog as a guard dog. That way he could claim for all his vets bills and dog food. I suppose the collar and lead counted as staff uniform. I don't remember if the IR swallowed it.

I don't know what the poor old dog would have done if a burgular had turned up.

[Vix]

Hi

Have you had a look at the business link website. As well as having all the info you're looking for they also have free advisors you can go and see.

As to trading as a sole trader, you don't need to keep audited accounts just a simple accounting system will do, so need for an accountant........mine got sacked after the first year of being in business due to bad advice, that was about 17 years ago!

You'll also have to pay class 2 national insurance contributions and class 4 if you make over a certain amount of profit.

You don't need to register a business name but remember if you trade under a name different to your own you will need to have your own name on the bottom of any invoices, letterheads etc.

and lastly the alliance and leicester have very good rates for their business bank accounts. I think when I looked into it they were offering Free banking if you kept within certain limits. A business bank account will always give your business more credibilty with any wholesalers you may plan to do business with.

Hope this helps

Vix.

[Bill Henry]

A chap I knew was advised by his accountant to 'employ' his dog as a guard dog. That way he could claim for all his vets bills and dog food. I suppose the collar and lead counted as staff uniform. I don't remember if the IR swallowed it.

What a great idea!!!

I’ll have to mention it to my accountant … as soon as he gets out of jail.

[kev@frames]

strangely enough, your best source of bullet-proof advice is your local tax office, and the HMRC web site. Tax officers at the counter are generally sensible, helpful, and sympathetic. They actually are there to help you get it right, not to catch you out (that comes later lol).

sympathies on the bad acountant, we had two in a row - im still reeling after a "surprise" (bailiffs at the door) VAT and penalties writ because of some incompetent clown masquerading as a chartered accountant - Cant say I miss the Lexus with the cost of fuel these days

Right now we just use an AAT for book-keeping, but the charges are daft, amounting to about 2 percent of our turnover - but at least she keeps a diary and makes sure the returns go in on time, but there is a dire lack of accountancy advice (forward planning suggestions) - and I have muted selling/changing/splitting the business and the concept of "exit stratgey" seems rather over her head.

Hugest tip I can give anyone - specially new to this game- is work smarter by highest prices you can get for fewer jobs, and never ever end up paying VAT if you can possibly live on the income you can make below the VAT threshold. Wish I had done that, though....
Over the years we went the wrong way, at one time being pretty "big" for a smnall firm - 7 employees, double workshop shifts, big turnover, 2 shops, tradework, contract frames, all that malarekey, and we are no worse of now we have scaled down to one shop and 3 full/2 part time. I wasn't sure whether I should have had a lloyds bank tie or an HM Revenue tie, because thats who I felt like I was working for, not myself.
By getting "bigger" and shifting the book-keeping, accountancy, payroll, VAT etc to an accountant, I lost touch with all that, And I dont think I could pick it all up again if I had to suddenly take over all that stuff and hit the ground running. So they have you over a barrel really. Besides, book keeping makes me want to lose my will to live.

Its a shame in business that no-one told me that book-keeping was vital..... I thought I just had to work hard all the hours there were and make frames..... wrong

To be honest I reckon we might even be better off with NO staff, and a quarter of the work, lose the burden of VAT and working from a shed. Thats the retirement plan then We arehalf way there after 15 years in the business, but its taken us the last five yearsto get "back down" to a manageable sized business.

Likes some otherson the forum changes were forced on us by personal circumstances or family illness, but they've worked out for the better. When you are self employed, business decisisions are not so clear cut, the line is very blurred between business and having a life.

In fact last night we got back from the first "holiday" we have had together in 9 years....it was only Exmoor for 4 days, but at least it was away from the business - so there must be something in the following saying: Profit is sanity, turnover is vanity.

[prospero]

What a great idea!!!

I’ll have to mention it to my accountant … as soon as he gets out of jail.

If you had a canary you could claim for him as him as an MDF fumes detector. If he dropped off his perch though asphixiation and you bought another, this would technically be a replacement of existing equipment wouldn't count as capital expenditure.



The World's Greatest Excuses: No 127.

"My accountant has been kidnapped by Columbian bandits and he has the cheque-book with him".

[foxyframer]

Some pretty pot useless accountants out there.

I spend an hour each year with mine ( has to be your best friend when dealing with all the latest tax law) just running over the previous years audit.

Keep it simple and run a profit and loss account.

The two main figures my accountant looks for are the turnover (ex.sales tax), and the gross profit percentage; this is a figure calculated after purchases and the opening and closing stock values.

How many framers bother to do an annual stock check ? Auditors look for it - and vital if you want an accurate gross profit figure. If moulding or any stock is not used in the year it carries over to the following year, or until sold. A degree of common sense has to come into stock taking: same time every year, keep a running spreadsheet of purchase costs makes it easier and don't count every single screw-eye or what's left on the cord roll, that's OCD.

Looking and guessing just not good enough !

Foxy

[Spit]

Perhaps someone reasonably familiar with book keeping could come up with a good basic excel spreadsheet that would suit new starters?

[Bill Henry]

A lot of good accounting software is so inexpensive for what they deliver that I think it would be a step backward to try to design a spreadsheet. In order to make one, you’d have to have a pretty good idea of double entry bookkeeping to make it understandable to an accountant.

I did a quick Google search and came up with http://www.freeaccountingsoftware.net/. I don’t know how good it is, but for less than US$ 100.00 you can get a state-of-the-art package, MYOB (Mind Your Own Business) which, over here, is THE standard business software.

A lot of framer's over here use Intuit's Quickbooks which integrates with other software programs, including some POS systems.

[WelshFramer]

MYOB isn't so popular over where Sage seems to rule the roost.

I use MYOB and it does all my normal costing (I charge by putting a mark-up on materials) and it does my stock control for mountboard and moulding. I charge moulding and mountboard by fractions of a length or sheet (with .25 generally being the smallest quaantity) and MYOB automatically pre-allocates materials for an order and warns me when stock of any item is getting low.

It also produces all the reports that the accountant needs for completing my tax return.

[NorthernTracey]

Yes I am already aiming to keep my business 'small'. I havn't registered for VAT and don't intend to.
I DO need to get a hold of that sage program and learn how to use it tho.
Company is already in process of folding and have decided to go sole-trader. I feel better about it already!!!
Thanx guys, you're all great!