If you are a sole trader or are thinking of becoming one here is all the vital information you need to understand to be a success
First off the basics..
What even is a sole trader?
A sole trader business is one of the simplest types of businesses to set up and run.
A sole trader can be defined as one person who is solely responsible for the business. The business is set up under the persons name and that person is entitle to keep all of the profit. However, the business is also responsible for all debts and tax owed.
What are the benefits to being a sole trader?
· Simple to operate
· The profits are yours to keep
· You don’t have to deal with Companies House, just HMRC
· It is cheaper
· Easy to set up. Easy to close down.
What are the disadvantages to being a sole trade?
· You are personally liable for the debts and taxes owed by the business
· If your profitable are reasonable then it can be less tax efficient to trade as a sole trader
All the details you need to know on registering as self-employed
If you’ve decided to start working for yourself, you must inform HMRC. It is best to register with the HMRC as so as you start trading. However you are allowed to trade for up to 3 months before HMRC can issue penalties for late registration.
What is a UTR number?
A UTR number is a reference that is issued to you as a taxpayer. You will need to quote this number whenever you are in correspondence with the HMRC.
Book keeping is a term used to describe the process in which a record is kept of the transactions, which have taken place within a business, such as income earned and expenditure.
What expenses can you claim?
· Staff costs and wages
· Motor expenses
· Materials and goods that you sell
· Use of your home as an office
· Repairs and renewals
· Admin costs
· Advertising and marketing costs
· Business insurances
· Memberships and subscription fees
· Work Clothing
· Professional fees
· Travel and subsistence
· Bank Charges and interest
· Capital expenditure
It is not a legal requirement to have a sole trader bank account. However, we strongly recommend that you do open a business account and use it solely for your business transactions. Separating your personal and business transactions will mean that your bookkeeping is much more straight forward.
When is the tax year?
The tax year is the period on which you are taxed by the HMRC. In the UK, the tax year is 6th April to 5th April each year. This is in some cases different due to the sole trader starting to trade part way through a tax year and opting to do their year-end to be one year from the date of commencement.
How much tax and national insurance will a sole trader have to pay?
Every person in the UK is entitled to a tax-free allowance. This is the amount of profit that can be earned before a tax payable. Over the allowances the rates are 20% (which can increase to 40% above another threshold) and 9% national insurance.
These rates can change so stay up to date by check the HMRC official site.
How can a sole trader take money from my business?
As a sole trader the profits generated from the business belong to you. You can simply take the money you need from the business as and when you like. However, it is wise to set aside a portion of your profits to cover your tax bill.
Registering as an employer?
If you take on an employee you will need to register as an employer with the HMRC straight away and start running payroll.