When considering which trading method to take, sole traders often become out of one or more of the following conditions;
- They are contracting for the sake of one contract of which they are unsure of its duration so do not want to set up a limited company for a short period of contracting.
- They are just doing a bit of self-employed work on the side of a permanent job.
- They are just starting out contracting and are unsure how much income they will get at the outset.
- They know they are likely to earn less than £40k per annum and so are unlikely to benefit from the tax efficiencies of a limited company anyway.
- They do not want to hassle of dealing with the IR35 legislation or the responsibilities of being a company Director.
Sole traders generally have an easier life when it comes to responsibilities than their limited company counterparts as it is a more straight forward method of trading, which is sometimes why people choose this working method in the first place.
There are, however, some responsibilities that you should still be aware of;
- Submitting your Personal Tax Return – this is your principal responsibility as a sole trader which will need to be completed on time, in advance of the 31st January each year. It is a form which you can complete yourself, however, it is recommended to get an accountant to do this for you in order to ensure it is completed correctly and you are noting and claiming the correct income and expenses.
- Payment of Income Tax – this goes hand in hand with your Personal Tax Return and payments will likely be due both before 31st January each year. Payments on Account will be due before the 31st July each year.
- Payment of National Insurance Contributions – as a sole trader, you will be expected to pay Class 2 NICs (maternity/paternity pay) which you can pay monthly by direct debit and Class 4 NICs which your accountant will calculate when completing your Personal Tax Return.
- Maintaining organised books – if you enjoy wasting time, money and extra hassle, then you don’t need to worry about this one. Making sure you keep all of your receipts for expenses and keeping all of your incomings and outgoings in some form of book keeping format as you trade and not leaving it all until the last minute, will ensure a happy sole trader at the end of the year. You can get your accountant to do your book keeping for you or you can use software such as FreeAgent if you prefer to do it yourself.
QAccounting can make a recommendation on whether becoming a sole trader is the right trading method for you on a case by case basis. Contact us today to find out more about our sole trader accounting services.
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