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Let’s be honest, starting your own business is an exciting prospect. Whatever hustle you’re running, the venture in itself is a massive achievement.
Now, a global pandemic may not seem the best time to start a business, but whilst March, April and May 2020 saw a year-on-year downturn in the number of new UK businesses forming, June saw a record-breaking 47% increase. So there’s no better time to introduce you to our boulevard of boring necessities.
What does it mean, you ask? Aside from being a fierce bit of wordplay, it’s basically the fundamental business necessities that new sole traders often overlook. Namely, tax, insurance, credit, and more.
Let’s start with insurance.
It’s a good question. And the answer is very little. But luckily for you, we’re partnered with Superscript – business insurers extraordinaire – who are here to break it down. Here’s a quick overview of some of the basics, then we’ll dive straight into how it works for sole traders.
Unlike tax, whether you’re a sole trader, limited company or partnership, business insurance works in generally the same way. All businesses have to sit down and think:
For some businesses, having insurance can be a legal requirement. For others in certain industries, it can be required to meet regulation to operate. There are actually loads of different reasons why you might need to get business insurance. Here are some more common examples:
Despite being super-important, many businesses don’t prioritise getting themselves insured. This can be a result of poor experience with buying insurance in other areas of life (e.g. travel insurance, home insurance etc.), a lack of awareness when it comes to what you need for your business, or even that it’s not something that you think about until something goes wrong.
The key question to ask yourself here is, ‘Could I afford the cost of a claim against my business?’
Ultimately, if you’re uninsured and a successful claim is made against you, you could find yourself with hefty legal and compensation fees to pay. And even if the claim is unsuccessful, you’ll still have to cover the (often steep) legal fees.
As a sole trader, there are various different types of insurance covers that are worth considering. Superscript has put together this list to help you get started.
The go-to if you’re offering a professional service (such as advice, design or consultation).
If you have employees, this is a legal requirement, except in some specific instances e.g. you employ close family members.
You need this if your work involves physical contact with members of the public (anyone who isn’t your employee).
If you supply, sell or even gift products, it’s worth considering this cover. It’s a common misconception that only the producer is liable for product-related issues, but that’s not the case.
This is one to cover work-related equipment and furniture. Many insurance providers won’t provide this type of cover when you’re based at a coworking space, so make sure that you choose carefully (…hint, Superscript).
This is critical if you’re reliant on computer systems to run your business, and/or you handle client data. Whilst there’s always a risk if your business is in any part online, without insurance, you’re even more vulnerable to cyber-attacks or data breaches. Contrary to popular belief, it’s not just big companies that are targeted. Small businesses are often also targets because they tend to have less IT security in place.
So cyber insurance is designed to protect you from:
Superscript is a great choice for sole traders because unlike many of the major insurers, you can get flexible cover on a monthly subscription.
And, the icing on top, our TaxScouts users get 10% off Superscript cover.
Tax is another traditionally boring side of starting your own sole trader business. It’s seen as quite complex which is why so many of us end up paying sky high fees to get the task taken off our hands. Whether you have loads of income or not very much at all, the frustration with tax seems universal.
But the reasons behind it are not.
In 2019, the UK’s top 1% of earners made up a staggering third of all Income Tax paid, whilst half of the population don’t pay any Income Tax at all.
Below are the three most hated taxes in the UK, according to multiple sources:
In short, evading tax will ultimately end up costing you more. Most people who end up fined by HMRC for missing tax deadlines do so by accident, or they slip up amidst the complicated process of doing their Self Assessment.
Organisation is key. Here’s what we’d recommend when you start your sole trader business:
Portify, our nifty partner in the credit space shared their expertise with us to help us understand the importance of credit for sole traders and how you can use it to your advantage.
Like tax and insurance, credit is another space that’s often overlooked by sole traders when they’re starting out. You may be wondering why it’s important, especially to a business owner. But actually, it’s crucial. You need good credit when you make any large purchases. It also enables you to access the best financial options available and gives you the benefit of having a choice when you’re figuring out what works best for you, rather than just being left to take whatever you can get.
Good credit also means that you have a financial safety net if things go wrong, which, when you’re new to the sole trader world, can be of paramount importance.
Similar to insurance, it’s the sort of thing that you don’t worry about until you absolutely need to. It’s not talked about in day-to-day conversation and it’s often not thought of as a necessity. But building good credit is a long game. The process can take years.
A YouGov survey found in 2019 that almost 50% of adults had never checked their credit score. That’s a surprising statistic given the extent to which credit affects what you can and can’t purchase – from a mobile phone contract to a mortgage!
Basically, there are two major ramifications of having bad credit when you’re a sole trader.
There are lots of ways to improve your credit score, although you may not have known that it could be so simple. Here are Portify’s top tips:
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