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Solo Success: Thriving Tips for Sole Traders



Business Lady

What is a sole trader?

A sole trader business, sometime known as being self-employed, is the simplest type of business to set up and run. A sole trader is defined by the fact that one person is solely responsible for the business.




Pros and Cons of operating as a sole trader.

The business will be set up under your name and you are entitled to keep all of the profits. 

However this means you are also responsible for the tax owed, along with any debts incurred by the business. In essence, as a sole trader, you are the business. 

Advantages

  • Cheap and simple to operate

  • You don't have to worry about salary and dividends

  • You don't have to deal with Companies House, only HMRC

  • Easy to set up and close down 

Disadvantages

  • You are personally liable for the debts of the business

  • If your profits are over £20,000 it can be less tax efficient

  • Customers, suppliers and competitors will see you as a small business.

Registering as a sole trader

If you decide to start working for yourself, you must inform HMRC of your decision, regardless of whether you already complete a Self Assessment tax return.

It is best to register with HMRC as soon as you start trading. The latest you can register is by the 5th October in your business' second tax year.

HMRC can issue penalties for late registration, so it's in your best interests to do this on time!

Registering with HMRC is very straight forward, you simply need to complete a CWF1 form, which can be found by clicking here.


What is a UTR number?

A Unique Tax Reference (UTR) is a reference number assigned by HMRC to identify you as a tax payer.

You should quote this number whenever you correspond with HMRC.

If you register as self-employer, HMRC will ussue your UTR number automatically, usually within 28 days. 

What is the tax year?

The tax year is the period in which you are taxed by HMRC. In the UK, it is the 6th - 5th April each year. 

A sole trader's financial year can be different. Usually due to the sole trader starting to trade part way through a tax year and opting for their year-end to be one year from the date of commencement.

However, most sole traders will set their period end as the 5th April so that it falls in line with the tax year.

Key dates for Self Assessment Tax returns
  • 5th October - Registering for Self Assessment

  • 31st October - Paper Tax Returns

  • 31st January - Online Tax Returns

  • 31st January - Pay all tax owed

  • 31st July - Optional mid-year Payment on Account

Income tax and NI

Every person in the UK is entitled to a tax free allowance. 

This is the amount of profit that can be earned before any tax is payable. Over the allowance, the rates are 20% tac, increasing to 40% above another threshold, and 9% national insurance.

Paying your tax bill

Your tax is due before the 31st January, following the tax year end. 

If your tax bill is over £1,000, then you must make payments on account. This means that HMRC will collect your tax plus the current year's tax in two payments; one payment before 31st January and the second before 31st July.

Completing your accounts

If we are completing your accounts and accompanying tax returns we follow a simple three step process

Prepare Your Information

Gather together records of your current tax situation, such as your previous years tax returns, details of your income and relevant bank records and receipts

We compile your accounts

After your accounts are completed, they'll be double checked by a senior accountant.

We'll then send them to you to review before we do anything further.

We submit your accounts

Once we've received your approval, we'll submit your accounts and return to HMRC

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