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 entrepreneurs, sole traders or the self employed to have one or more business interests. However there are some tax, national insurance and VAT implications you should be aware of if you are a sole trader with two or more businesses.
Let’s look at an example to explain the tax implications for a sole trader with two businesses.
Kevin has been a sole trader for many years, working as a self employed plumber. Kevin has now decided he would like to start a second business as a sole trader, offering web design services.
Tax and National Insurance for Multiple Sole Trader Businesses
Kevin is already registered with HMRC for self assessment as he has been a self employed plumber for many years, therefore he does not need to register as a sole trader again with HMRC otherwise confusion may set in and HMRC will issue another UTR number and expect two tax returns!
Kevin will pay tax and national insurance on his income earned from both businesses combined – there is no additional personal allowance available for the new business and if the new business makes a profit then additional class 2 and class 4 national insurance will be payable on these new profits.
It is also worth noting that his payment on account will also be based on his total income, which include his earnings from both his businesses.
Completing Self Assessment Tax Return for Sole Trader with Multiple Businesses
Kevin will need to submit two self employment sections one for each of his businesses as part of his Self Assessment Tax Returns and this is notification to HMRC that he is running multiple businesses.
If one business makes a loss, perhaps because Kevin is in the first year of trade in his new web design business, then the following options are available to him in respect of using this loss:
- Set the loss off against the profits of his plumbing work;
- Carry forward the loss to set against future self employment profits from either the plumbing or web design business;
- Carry back the loss to set against the previous years profits made in Kevins existing plumbing business.
VAT for a Sole Trader with Multiple Businesses
Kevin should also keep in mind VAT. Businesses are currently required to register for VAT when their turnover reaches £85,000. For sole traders with more than one business, the turnover of all the businesses the sole trader runs will be added together in determining whether Kevin has reached the VAT registration threshold and must register for VAT. The VAT registration will then apply to both the plumbing and web design business, so Kevin would need to charge all his customers VAT.
Kevin could look to incorporate and put one of his businesses through a limited company to avoid both businesses being included for VAT registration purposes. A Limited Company does carry additional reporting requirements and costs, so it is always recommended that professional advice is sought 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: Bonnie runs a mobile hairdressing business, she then decides to offer mobile nails to offer her clients a more complete package. In this case, Bonnie should watch out since she is offering an additional service, as a result of her hairdressing to the same clients.
My Recommendations for a Sole Trader with Multiple Businesses
- Keep separate accounting records;
- Keep separate bank accounts;
- Monitor all your business’ turnovers and seek professional advice if you approach the VAT threshold
- Consider these 3 Practical Things Before Starting a Second Business