Can A Sole Trader Have Two Businesses?

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CAN A SOLE TRADER HAVE 2 BUSINESSES?

Once you’ve been bitten by the entrepreneurial bug you just can’t help but see opportunities everywhere!

So if you have spotted a new big idea, then the next natural question is ‘Can a Sole Trader Have Two Business?” Here’s some essential advice to help get you started with your new venture.

Yes, A Sole Trader Can Have Two Businesses

There is no restriction on the number of businesses a sole trader can have.  In fact it is pretty common for sole traders and the self employed to have one or more business interests.  After all income diversification can offer you the biggest protection of all from down times.

There are tax, national insurance and VAT implications you should be aware of if plan to have two businesses. Here’s what you need to know:

You Don’t Need to Register as a Sole Trader with HMRC Again

You don’t need to register for self employment again otherwise HMC with issue another UTR number and expect two tax returns.

There Is No Additional Personal Allowance

Personal allowance is an amount set by HMRC that you can earn tax free.  But it comes off all your earnings in total, across all sources.

Tax and National Insurance Will Be Based on the Profits of Both Businesses

The amount of tax and national insurance you need to pay will be based on the total amount you make across both businesses combined.

Your Payment On Account May Increase

Your payment on account will also be based on total income.  So if your income goes up so will your payment on account.

Can A Sole Trader Have Two Businesses?

You Need to Complete Two Self Employment Sections in Your Tax Return

One self employment section of the self assessment tax return form covers one business.  So if you open another business then you’ll need to fill an extra self employment section.

How to Prepare to File Your Own Tax Return

There Are Some Possibilities When It Comes to Tax Losses

If one business makes a loss then the following options are available:

  • Carry forward the loss to set against future profits from either businesses;
  • Carry back the loss to set against the previous years profits made in your existing business.

VAT for a Sole Trader with Two Businesses

Businesses are currently required to register for VAT when their turnover reaches £85,000. For sole traders with two businesses, the turnover of both businesses will be added together in determining whether the VAT registration threshold has been reached.

The VAT registration applies to both businesses.  This means all the customers of the two businesses will need to pay VAT (which can present an issue for pricing or margins).

One potential way around this is to incorporate one business.  This means running it as a Limited Company meaning it will be considered in isolation for VAT registration purposes. This can avoid both businesses being VAT registered but has additional reporting requirements and costs.

Always get professional advice before adopting this approach.

HMRC do have strict rules around this approach to test whether you are avoiding VAT registration by forming a Company.  They will consider whether the multiple businesses being run by the sole trader are dependant on one another, have the same clients or operate using the same facilities.  For example: If you run a mobile hairdressing business and then decides to offer a mobile nails service then to your clients incorporation to avoid VAT registration would be seen as tax evasion.

My Top Recommendations for a Sole Trader with Two Businesses

Head over to the Business Hub. It’s full of templates and guides to help you manage your finances when you’re self employed. And don’t forget to find me on Facebook.

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I'm a Chartered Accountant turned Blogger and I built this site to help self employed business owners grow profitable businesses by making the intimidating aspects of business and tax easy to understand with ‘How to’ Articles, Guides and Courses. Take a look around and you'll find all essential information you need to know to go self employed, launch a new venture and run a profitable business.