The term ‘sole traders’ refers to any person who runs an enterprise with only themselves as the proprietors. Although this does not necessarily mean that the sole trader is the only person who is in business. It is not uncommon for a single-person company to employ other individuals as well.
Taxes for sole traders
A sole trader is a business owner who pays income tax on their profits. These can be money earned from the sale of goods and services.
In addition, you can also claim back all your business costs as long as they directly related to your business. This means that you can pay less Tax on your earnings.
You may also be required to register for VAT. The UK tax authority encourages sole traders to do this. Sole traders are liable to register for VAT when their turnover reaches £85,000 per annum.
The most important thing to remember is that you need to be registered with HM Revenue and Customs (HMRC). This is because as a business, you will be required to pay income tax and National Insurance contributions depending on your profits per year. This article explains how in detail how to register as a sole trader.
You will need to complete a self-assessment tax return every year. The deadline for this is 31 October if you are submitting paper return and 31 January if you submit online.
Risk Control over your business
One of the biggest dangers in running a small business is commercial risk. This includes the risk of being sued by either a customer or a supplier. Luckily there are ways to protect yourself. The simplest of all is to sign up for a business insurance policy. As with most things in life, there’s a cost associated with doing business, but it’s worth it in the end. A good policy will prevent your business from becoming an unwelcome liability. Among other things, it will ensure you’re well covered should you ever get into a lawsuit. The best policies are those that offer you peace of mind while ensuring your business is protected and your personal assets remains with you.
Advantages
Unlike limited companies, sole traders are not required to file annual accounts with Companies House. Additionally, they don’t need to disclose financials to outsider except HMRC.
Moreover, the cost of setting up a sole trader is relatively inexpensive. The normal set-up costs include materials, advertising, and rent.
Disadvantages
Sole trading is a popular business structure across the world. Despite its advantages, it comes with its own set of disadvantages.
Sole traders are generally considered to be a higher risk. This is because they don’t have a separate legal personality, and are personally liable for their business debts. You’ll also find that they don’t have access to the lower rates of Corporation Tax. However, they are more flexible and can easily adapt to changing circumstances.
Unlike a limited company, a sole trader is personally liable for business debts, making the choice of financing important. Banks will often consider a sole trader’s repayment capacity before approving the loan. If a sole trader defaults on the loan, the assets he owns could be repossessed.
As A Sole trader do I need a business account?
If you’re a sole trader, you may be wondering whether you need a business account. Although it’s not a legal requirement, it’s definitely a good idea to have a separate bank account for your business. It can be a valuable tool to help you keep track of your cash flow and keep your records organized.
Most high street banks offer business accounts to sole traders. These are accounts which can be set up in minutes. Some have useful features such as integration with accounting software. Other online providers have lower fees on transfers and payments, while others can be used to optimise your business for payment.
A business account can also help you prepare your annual tax return. Many companies, including sole traders, have to send a self-assessment to the tax authority each year. Keeping your accounts organized can help you save time on this task. You can also easily spot potential problems in your cashflow before they become large enough to affect your business.