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.
But there are
How to Register a Second Business With HMRC
You don’t need to register for self-employment again otherwise HMRC with issue another UTR number and expect two tax returns.
Instead, when you fill in your tax return you’ll need to fill out two self-employment sections, one for each business.
Tax and National Insurance for a Second Business
There Is No Additional Personal Allowance
The personal allowance is an amount set by HMRC that you can earn tax free (£12,500 for 2019/2020).
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 is also based on total income. So if your income goes up so will your payment on account.
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 to your
Bookkeeping for Sole Traders 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.
If you are using my bookkeeping spreadsheet, you would need one spreadsheet for each business.
What Else Should You Consider before starting a second business?
The Affect on Your First Business
Opening a second business will take up time and energy. Depending on the type and stage your first business is at, consider whether you will be able to divide your time and resources between two business (especially a start up). Both businesses could end up suffering as a result of your limited time and attention.
What Will Your Second Business Do
Depending on what business you want to start, you may find that your second business is complimentary to your second business. For example you may sell clothes online but want to open up a separate business to sell old stock at bargain prices. Starting a second business that is complementary and relies on transferable skills will be much easier and quicker to setup and manage.
How Will You Fund Your Second Business
I have often come across situations where business owners have chosen to start a second business using funds of their first business, unfortunately putting stress on the first business. If you are considering starting a second business, consider how you will fund the start up costs and, if this is to come from your first business, whether it has the cashflow to do so and repayment terms attached to any money it lends to the second business.