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
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.
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.
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
- Keep separate accounting records;
- Keep separate bank accounts;
- Monitor all your business’ turnovers and seek professional advice if you approach the VAT threshold
- Read this Practical Advice Before Starting a Second Business