Starting your own business can be a good idea for many reasons. You gain autonomy, flexibility, freedom, and all of your profits are yours to keep – which means all your hard work pays off in a much better way than it does with an employed position.
If your first self-employed business is doing well, you can also start branching out into multiple businesses. As a sole trader you are able to employ staff, which means it is perfectly reasonable to run multiple businesses yourself without having to over-extend.
A lot of people are unsure about the rules around having multiple businesses, so we have broken down some of the frequently asked questions to help you decide if having a second (or third or fourth) business is right for you.
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.