Can a sole trader have more than once business?Yes. There is no limit placed on the number of businesses you run as a sole trader, however, you will need to declare each business to HMRC when filing your tax returns. You also only receive a personal allowance of £1,000 for yourself (the self-employed individual) so you cannot get £1,000 tax free allowance on each one of your businesses. Because you are self-employed, you will need to declare each business every tax year. You will need to have all your documents in order and separate when recording your finances, and it needs to be clear to HMRC that the businesses are separate. Make sure that you run each business independently. This means:
- Separate bank accounts for each business
- Separate insurance policies for each business
- Separate books and finances for each business and no transferring of funds between businesses unless a formal business agreement is in place for a loan or similar arrangement
Do I need to register different sole traders?You will not need to register again with HMRC because registering with them is for self-employed registration. If you were to register multiple times you would get multiple unique tax codes and need to complete multiple tax returns. This would, in fact, be considered tax evasion and you could face fines and legal proceedings, so make sure you only register once. However, when you submit your self-assessment tax return you will need to fill out a separate section for each sole trader business you have formed.
How do multiple sole traders influence tax and national insurance?Your tax and national insurance are calculated on your income as an individual. If you had multiple employed positions you would still be taxed on them and the same applies to sole traders. Because sole trader is the business structure, but self-employed is your employment state, the two are often seen as the same thing for practical purposes. When you fill out your self-assessment tax returns, you are filling them out for your employment status, not your business structure. That means you only fill in one self-assessment tax return, but need to complete a section for each sole trader business you run. Your final tax and national insurance contributions will be calculated on your total income as an individual. All the income or loss from all of your sole trader businesses will be taken into account simultaneously.
How do multiple sole traders influence VAT?The current threshold for registering for VAT is £85,000. Once your business is making this or more in taxable turnover, you must register for VAT. This applies to the named owner of the sole trader, so even if you have different names for each business, the total for all businesses linked to your name will give you the total taxable turnover. If one of your businesses reaches the threshold but the other does not, it might be in your best interest to incorporate the more profitable business rather than register both for VAT. When you register for VAT, it applies to all your sole trader businesses and you will be required to charge VAT on all products. This could be bad for smaller businesses as it often means raising prices to cover VAT expenses. If you do choose to incorporate one of your businesses, make sure you seek legal advice first. There are strict rules in place around incorporating to avoid VAT registration and taxation, and HMRC do not look kindly on this kind of mistake. If there is any doubt, HMRC will want to check if the businesses have any dependency on one another, if they share clients, if they share employees, and if they have shared facilities or equipment. Having professional advice before setting up or changing business models will help you and your business stay safe.
How do I keep books for more than one sole trader?If you already have one sole trader business, keeping books will be straightforward for you. Your finances do not get any more complicated when you open a second sole trader business. The only thing that needs to change is that you must keep your books separate. This means separate bank accounts, separate invoicing, and separate balance sheets. Even if you have customers who frequent both businesses, you should avoid the temptation to do merged invoicing. Each business must be kept separate and have its own books.
What should I consider before opening a second sole trader business?Before venturing into multiple business ownership, you should think about the implications to both your original business and your new one. Rushing into business can be expensive if you haven’t done due diligence, so before you start, ask yourself these questions:
- Will I have enough time and energy to run both businesses well? Have I factored in that new businesses require more time and effort than established businesses?
- Do my businesses compliment each other? Will I be able to smoothly transition between the skillsets needed for both jobs or will it take time to change my mindset every time I need to move between businesses?
- Where is my capital coming from for my second business? If I plan to use income from my first business, will it be sustainable and will it put financial strain on my first business that could cause both businesses to struggle?
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