Your business setup affects the taxes you owe and the reports you need to file. If you’re running the show by yourself without forming a company, you’re a sole trader. On the other hand, if you run your business through a personal company, even if you’re the only employee and director, the company is its own legal entity.<\/p>\n
If you’re thinking about starting your own business as a sole trader, here are some key points to consider:<\/p>\n
1. Registration to Self-Assessment<\/b><\/p>\n
– New to Self-Assessment: If you earn more than \u00a31,000 in a tax year and haven’t registered for Self-Assessment yet, you need to sign up by October 5th following the end of that tax year. You can register online at the Gov.uk website.<\/p>\n
-Existing Self-Assessment Registrants: If you’re already registered for Self-Assessment, you still need to register as a sole trader to account for Class 4 NICs. Even if your profits are low, you can opt to pay voluntary Class 2 NICs by registering.<\/p>\n
2. Earnings of \u00a31,000 or Less:<\/b><\/p>\n
– If your gross trading income is \u00a31,000 or less, you can use the trading allowance to make your profits tax-free without informing HMRC.<\/p>\n
– If you earn more than \u00a31,000, you can either deduct the \u00a31,000 allowance or your actual expenses, whichever is more beneficial. If you incur a loss, registering and filing a tax return is recommended to claim relief.<\/p>\n
3. Record-Keeping:<\/b><\/p>\n
– Keep track of your business income and expenses. Guidance on necessary records is available at www.gov.uk\/self-employed-records.<\/p>\n
4. Income Tax and National Insurance:<\/b><\/p>\n
– As a sole trader, you’ll pay income tax and Class 4 National Insurance contributions (NICs) on your profits.<\/p>\n
– Class 2 NICs were required before the 2023\/24 tax year.<\/p>\n
– Sole traders pay income tax on their profits. Starting from the 2024\/25 tax year, your taxable profits will align with the tax year (April 6 to April 5).<\/p>\n
– Your tax liability is based on your total income, including self-employment profits. File your tax return by January 31 after the tax year ends.<\/p>\n
– Class 4 NICs apply to profits over \u00a312,570, with rates of 6% on profits between \u00a312,570 and \u00a350,270, and 2% on profits above \u00a350,270.<\/p>\n
– Pay your tax and Class 4 NICs by January 31 after the tax year ends. If your total liability exceeds \u00a31,000, make payments on account for the next tax year on January 31 and July 31, unless 80% of your tax is collected at source through PAYE. Each payment is 50% of the previous year\u2019s liability.<\/p>\n
5. VAT Registration:<\/b><\/p>\n
– You must register for VAT if your taxable turnover reaches the threshold of \u00a390,000.<\/p>","protected":false},"excerpt":{"rendered":"
Your business setup affects the taxes you owe and the reports you need to file. If you’re running the show by yourself without forming a company, you’re a sole trader. On the other hand, if you run your business through a personal company, even if you’re the only employee and director, the company is its…<\/p>","protected":false},"author":2,"featured_media":221741,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,68],"tags":[],"class_list":["post-221740","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-hmrc-tax","category-3","category-68","description-off"],"yoast_head":"\n