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As a sole trader, you must utilise the correct documents to protect your commercial interests when starting your business. A sole trader operates as an individual rather than a partnership that requires at least two partners. If you set out as a sole trader, you will be personally responsible for tax through a self-assessment tax return. Additionally, you are liable for paying bills and any legal action against you. This article will explore the starting documents you need for your sole trading business, so you can decide whether it is the most suitable structure for you.
Initial Tasks in Starting a Sole Trader Business
The first decision is whether to trade under your own name or have a ‘business name’. If you choose a name other than your own, you should ensure another company does not use it. Following this, you should register for self-assessment with HMRC concerning your earnings, from which they will deduct income tax and national insurance contributions. As a self-employed person running the sole tradership, you must make these contributions.
If your business is likely to result in considerable profit, you may also visit to register for VAT. Finally, you should consider taking out professional indemnity insurance to avoid liability for high legal fees or compensation if someone sues your business.
Starting Documents
Any sole trader enterprise could benefit from numerous documents. However, the four most significant documents include:
- website terms of use;
- terms and conditions of business;
- consultancy agreements; and
- non-disclosure agreements.
Website Terms of Use
This document has various other names, including:
- user agreement;
- website terms and conditions; or
- terms of service.
Whichever name you use, the document exists to confirm the legal position between your business and individuals accessing your website.
Terms and Conditions of Business
This document is also known as the sales terms or purchase terms and conditions. It records the mutual sale obligations between you and your customers. Good business terms and conditions can help protect you during any future legal action, as they will establish a clear record of what terms you and your customer agree on. Courts tend to enforce these documents as long as the wording is reasonable, clear and precise and agreed upon by the customer.
Most versions of this document confirm:
- the customer’s rights of cancellation, replacement or exchange;
- guarantees as to item quality and the right to cancel the purchase or obtain a refund;
- details of delivery charges, time periods and the geographical limits for delivery of goods or services; and
- confirmation of which law applies to the terms and conditions, most likely the law covering England.
Consultancy Agreement
As a sole trader business owner, you may decide that demand will be more than you can do alone. Accordingly, you may consider using a consultancy agreement to engage individuals to perform work for your business. There is a legal distinction between a self-employed consultant and an employee. Therefore, you must use a consultancy agreement instead of an employment contract. This document sets out the mutual obligations between you and the consultant regarding pay, types of work and data protection.
Non-Disclosure Agreement
While running your sole trader business, you will encounter situations where you disclose confidential information to others. On each occasion, you should consider using a non-disclosure agreement (NDA). The purpose of an NDA is to stop other parties from passing your confidential information to others or leaking it into the public domain or online.
The NDA will set limits as to:
- how far another business (or person) can use or record your confidential information;
- your right to demand that they return or destroy that information; and
- your clear instructions on when they cannot pass that information to others.
It is worth noting that some companies and individuals refuse to sign NDAs. In those circumstances, you will have to weigh the pros and cons of disclosing that information to others.
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Key Takeaways
When starting a business as a sole trader, it is essential to use the correct documentation. Your organisation will most likely require a website terms of use document and terms and conditions of business documentation. Additionally, should you choose to retain consultants, you will require a consultancy agreement which is separate from an employment agreement. Furthermore, to protect your commercial interests and intellectual property, consider using non-disclosure agreements to prevent the disclosure of important, confidential information.
If you need help with documentation to start a sole trader business, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
It is common for plasterers, plumbers and interior designers. This is usually because they normally involve one person carrying out business independently.
Technically, no. However, vague, unclear documents can lead to unnecessary court battles in the future, so it is worth strongly considering having a lawyer draft these documents for you.
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