Starting your business as a sole trader

Starting your own business as a sole trader is an exciting time but it can also be quite daunting. It is important to remember there are legal obligations that you need to comply with as soon as you begin business.

Your first obligation as a sole trader is to register for an ABN – Australian Business Number. This can easily be done online, via mail or even in person. Both the Australian Tax Office and Australian Business Registration websites have a comprehensive list of all the requirements you will need to meet. After registering you will receive a notification of registration with your ABN details and eleven digit ABN number. If you don’t register for an ABN your clients are required by law to take 48.5% tax out of your invoices.

The next step is to determine whether you need to register your business name. According to law you can conduct business in New South Wales under your own name without registering a business name. But if your business name is different from your actual name, you must register it before you start. This is done through the NSW Office of Fair Trading and it has to meet the department’s requirements. Basically, it should not be offensive or already in use. It is advisable to have a list of names in case your first choice is unavailable.

Once your business name is registered you will receive a Certificate of Business Registration. This is required by law to be visible at your principle place of business. Even if you operate your business from home you need to have it on display and may even find that some clients ask you for a copy of it.

Many sole traders get confused when it comes to their GST requirements. If you expect your income to be more than $75,000 per year you are required to register for GST, which you can do on the ATO website. If you don’t think your income will be over $75,000 then you don’t need to register but once you have reached this threshold you must register within two weeks.

If registered for GST you must charge GST of 10% on top of your rate. For your expenses, you will receive invoices / receipts from your suppliers charging you 10% GST. Whether or not you are registered for GST will also impact on your invoicing requirements. In this cheat sheet, there is an example of an invoice you can use when you are registered for GST and also an example of how to invoice when not registered for GST. Click here to view both. When you are registered for GST you must also report and pay your GST either quarterly or annually. It is recommended that you put aside a 10% GST component of your client’s payments so that when your BAS is due you are not hit with an unexpected bill. And you must remember that as a sole trader you are still liable for PAYG tax on your income.

There are many obligatory accounting requirements that as a sole trader you need to meet. A bookkeeper can really help you keep track of your income so you aren’t met with any nasty surprises. And remember to keep all your business related receipts.