In Australia, a sole trader is a business structure where a sole person owns and operates their business without setting up a company. In other words, they trade solely (ba dum tss!). You’ll find them in all sorts of industries, from construction to film to medicine – or even retail!
Running a retail business solo means navigating your own finances and taxes, all while keeping the shop floor running smoothly. Let’s walk through the basics of starting out as a sole trader in retail and the tax rules that come with it.
What is a retail business?
A retail business, or retailer, sells products directly to customers. Traditionally, retailers have operated out of physical locations, like your local supermarket or bookshop. These ‘brick and mortar’ stores have existed since ancient times – an early example being the Roman Forum(!).
With the rise of e-commerce, many retailers also choose to sell their goods online, in order to reach a broader market, and some have ditched the physical store entirely.
Retail businesses are often the ‘middlemen’ between the people who make a product, and the product’s end users. They purchase products from suppliers or manufacturers and sell them to their customers at a profit.
But this isn’t always the case – some sole traders produce their wares themselves, making them both manufacturer and retailer all in one!
Starting out in retail
If you’re looking to start a retail business, here are some of the things you’ll need to sort out first:
1. Source your product(s)
Find a reliable supplier or wholesaler to buy your products from, or if you have the talent and time, you can make them yourself!
2. Set up shop
Look for a space that suits your business – size, price, and location are all key things to consider. If small talk with customers isn’t your thing, you can sell online instead using your own website or an existing online marketplace, like Etsy.
3. Set your prices
Make sure you charge more for your product than you paid, as making a profit is key! Your prices should cover all your operating costs with enough left over to pay yourself.
4. Choose your preferred payment method
Unlike many other businesses, retailers are paid directly by customers at the time of purchase. Customers in store may pay by cash, EFTPOS, or mobile payments. When buying online, customers generally pay using their credit or debit card.
5. Market and advertise
‘Build it and they will come’ might not get you far in the modern retail world! Good marketing will help you stand out from the crowd and get eyeballs on your product. A great customer experience will keep them coming back.
Why start as a sole trader in retail?
Setting up a retail business doesn’t have to be complicated! Many small shops and online stores are run by one person. Think of your favourite jam stall at the Sunday markets or a boutique dog collar designer on Etsy.
For those new to retail, being a sole trader can be a flexible and cost-effective way to work. Being one with your business means there’s a lot less gnarly paperwork and tax admin involved, compared to registering a company. Generally, all you need is an Australian Business Number (ABN) and you’re good to go.
(If you’re likely to exceed the GST threshold, you may also need to register for and charge GST. More on this in a bit.)
Fortunately, being your own boss doesn’t mean you have to go it alone. Despite what the name suggests, sole traders can hire staff to share the load. And if, at any point, the sole trader model is no longer working for you, you can always become an incorporated company down the track.
Handling tax as a sole trader
Employees enjoy the luxury of having their taxes automatically deducted from each paycheck. Must be nice! Sole traders aren’t so lucky. Tax is a year-round task and it’s up to you to set aside enough money to cover what you owe:
1. Income tax
Income tax is calculated based on how much you earn – at exactly the same individual tax rates as PAYG employees.
The good news is that you can claim eligible tax deductions to reduce your taxable income, and therefore your overall tax bill. In retail, this can include everything from your shop’s rent and utilities, to website costs and packaging materials.
2. Medicare levy
The Medicare levy is paid by most taxpayers/residents in order to fund the public health system. While it’s automatically deducted from PAYG salaries each pay day, sole traders are responsible for calculating and paying their Medicare levy every financial year.
Higher earners may also need to pay the Medicare levy surcharge, depending on their family’s level of private health insurance.
This one can really sneak up on you if you’re not prepared!
3. Goods and Services Tax (GST) (if eligible)
Any sole traders making over $75,000 in any given 12-month period need to register for and collect GST.
GST is a 10% flat rate added to the sale price charged to the customer. As a sole trader, this is paid to the ATO through regular BAS returns. You may be able to reduce the GST you pay by claiming back the GST on your business expenses.
Other bits and bobs
While not technically taxes, you’ll also want to set aside enough money to cover any student loan repayments you owe (this is a must!) or Superannuation contributions (this one is up to you!).
Student loan repayments
For those with HELP/HECS debt, once you’re over the earnings threshold, you’re required to calculate and pay compulsory repayments each financial year.
How much you owe depends on how much you earn – for more, check out our guide to student loan repayments.
Superannuation contributions
Nobody wants to work forever. Superannuation is one way you can invest in your future retirement. As a sole trader, you decide how much you want to contribute and how often.
Depending on your circumstances, you may be eligible for tax relief on your contributions – well worth factoring in!
How Hnry can help
All this tax stuff seems a bit complicated, doesn’t it?
Hnry offers an affordable and straightforward solution to all your tax woes. Our tax app and service is specifically designed for sole traders so you can rest assured your tax is fully taken care of.
For just 1% +GST of your self-employed income, capped at $1,500 +GST a year, Hnry will calculate and pay all your taxes for you, including:
- Income tax
- GST (if applicable)
- Medicare Levy
- Student loan repayments
- Superannuation contributions (optional)
Let Hnry sort your taxes so you can get back to the important stuff. Don’t leave those customers waiting!