Last week we went over Director Responsibilities for Limited Company Directors.
If you are, or are thinking of trading as a Sole Trader, because:
- You are just starting out as a Contractor or Freelancer and are not sure of how much income you will bring in from the work at the outset.
- You know it’s likely to be less than that £40,000 of income that you will bring in through the Freelance/Contract work in the year. (Usually it’s not as tax efficient to trade as a limited company if your income is less than £40k)
- Perhaps you are unsure of how long a contract will last, and you don’t want to start up a Limited Company for a few months of work.
- You are just dabbling in a bit of self employed work on the side of a PAYE full time or part time position.
Then Sole Trading may be the answer you are looking for!
We usually make a recommendation on a case by case basis, so one of our Business Advisors will be more than happy to help if you are unsure about what trading method suits you best, so please get in touch.
So what are your responsibilities as a Sole Trader?
Well you will be happy to hear there are significantly less, as it is a relatively straight forward method of trading (in comparison to a Limited Company).
They are as follows:
1. Personal Tax Return
Your main responsibility as a Sole Trader is to submit a Personal Tax Return each year. Technically, you can do this yourself, as it’s filling in a long form, though to ensure that it is correct and that you are noting and claiming the correct income and expenses we would recommend that you get an Accountant to do this – and I’m not just saying that as we are an Accountant – I have seen people try it themselves, and get in a bit of a muddle.
You want to ensure that you submit this Personal Tax Return, and make the appropriate payment of income tax on time. Your Personal Tax Return is due to be submitted in advance of the 31st of January each year. Payments will likely be due both before this date, and Payments on account will be due before the 31st of July each year. (You can learn about Payments on Account in our blog).
2. National Insurance Contributions
The only other payment you will be making to the Tax Man (HMRC) is National Insurance Contributions. As a Sole Trader you will be expected to pay both Class 2 (going towards benefits like Maternity/Paternity Pay) and Class 4 National Insurance Contributions. Even this is not too much of a hassle – you can pay the Class 2 NIC’s by direct debit monthly (just around £12 per month) and your Class 4 NICs are calculated by your Accountant when completing your Personal Tax Return.
3. Keeping Organised Books
This is one of the most important things as it will seriously save you some hassle, time and expense in the long run. Make sure you keep all receipts for expenses, and keep all of your income and outgoings for the business in some format of book keeping. I would personally recommend either FreeAgent or getting your Accountant to do it for you – which will save you lots of late nights stressing in a pile of receipts.
Told you it was straight forward! You can call one of our friendly advisors today who would be delighted to advise you if being a Sole Trader or a Limited Company suits your individual requirements best – and will set you up for FREE. Happy trading! QAccounting. You Count. We Count.
Corporation Tax Rate Changes
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Autumn Statement – Headline Changes
Autumn Statement – Headline Changes
Extracted from the ACCA Guide to the Autumn Statement 2022
Why Freelancers Should Hire an Accountant
In the world of work, freelancing is an increasingly popular option. The promise of flexibility, unlimited earning potential and complete control over the way you work is a hugely attractive prospect for many.
Although freedom is one of the big draws of the freelance lifestyle, there’s still plenty of financial responsibilities that come with it that can really eat into your time and profits.
But do freelancers really need the services of an accountant? Let’s find out.