One of the most complicated areas of becoming a self-employed worker is the tax issues. Unfortunately working for yourself also means being responsible for your tax – there is no HR department when you are a sole trader or working on your own. When you are self-employed you do not have a boss; that boss is yourself. Being a sole trader is one of the most common forms of self-employment, when you solely own your business. When you are a sole trader there are a few major things to remember when you are sorting out your tax.
Registration and Information
You need to inform HMRC that you have become a self-employed person no later than three months since you started to work for yourself. This means that you are registered for the self-assessment tax process. You need to inform HMRC even if you also have another job as an employee, whether you expect to make a lot of money or a little, and whether you plan to be self-employed for a long or short period of time.
It is simplest to register as a sole trader if you are starting out in self-employment. You don’t need to pay any fees and you are entitled to all the profits. However, you are also liable for debts through your business, and that can make it a risky prospect for a business which attracts a considerable amount of investment. If you are setting up a business with a more complex structure and different investment sources then it is worth seeking advice from accountants in central London – for professional accountants central London offers a wide choice so make sure you find someone you are comfortable working with over the long term.
Keeping Accounts
It is not essential to follow a specific format for your accounts if you are a sole trader, and you can do them yourself if your company has a simple structure. However you may want to look into using a software package for the accounts, or getting help from professional accountants. This can certainly help you when you want to apply for a loan, or when you need accurate financial forecasts. It is not essential for your taxes to be audited as a sole trader although you may choose to do so if you want to show proof of your income to apply for a mortgage, for example.
National Insurance for Sole Traders
You are responsible for two forms of national insurance when you are a sole trader depending on how much you earn. Above the threshold of £5,965 in the 2015 tax year you pay Class 2 payments of £2.80 weekly. Class 4 national insurance is worked out as a percentage of any profits you make.
Remember that you are not separated from your business when you are self-employed, and you are also taxed on the assets you may have outside the business. The profits combine with any other income on which you can be taxed and you will pay on whatever is over the personal allowance.
