Tax Returns for Sole Traders and the Self-Employed

As a Sole Trader, you're going to have to learn your way around the Self Assessment tax return system. Tax returns for Sole Traders cause a lot of stress and hassle each year. It's easy to miss a deadline, particularly if your file your tax returns on paper, and there are some nasty penalties.

 

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Tax Returns for Sole Traders and the Self Employed

Sole Trader Tax Returns

Crucially, from the taxman's perspective, you and your business are one and the same thing in legal terms. This is different from setting up a Limited Company. In that case you have to file 2 different kinds returns, one for you and one for the company, as individual legal entities.

The main difference is that when you file your Self Assessment tax returns as a Sole Trader, a mistake can cost you more than just your business. If it all comes crashing down, you'll be personally responsible for clearing up the mess. That means paying off debts out of your own pocket – and potentially even putting your home at risk.

Even so, working as a Sole Trader is probably the simplest and most popular way to get off the ground as a new business. It's cheaper and easier than running a Limited Company, but without some of the protections. That's why getting help from RIFT is a great step. Our expertise and experience in Self Assessment will protect your business, your personal cash and much more. At the same time, we'll make sure you're not paying a penny more than you owe to HMRC. It takes a true specialist to get the best from the Self Assessment system, and RIFT are the UK's leading tax return experts.

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Keeping records

What records will I need to keep as a Sole Trader?

When it comes to Self Assessment, you'll need to get comfortable with paperwork. With RIFT's help, though, you'll always be well prepared. We'll explain everything you need, from receipts and invoices to statements from your business bank account. Store all of this in a safe place, and make copies if you can.

We're also always on hand for advice throughout the tax year. For example, we can talk you through the accounting software you'll need to keep everything organised. You'll be glad you were so thorough when the Self Assessment deadline's looming.

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National Insurance Contributions

How does national insurance work for sole traders?

As a self-employed Sole Trader, your National Insurance works differently from people on PAYE. Instead of your pay having Income Tax and National Insurance taken off before you get it, you'll submit tax returns to HMRC. The current National Insurance rates for Sole Traders are:

  • Class 2, which is a fixed rate unless your earnings are below the limit for paying it.
  • Class 4, which is based on the profits you make. Again, if those profits under the threshold you won't owe anything for them.
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Income tax for sole traders

Paying income tax as a sole trader

On top of your National Insurance Contributions, you'll also pay Income Tax on your earnings, again through Self Assessment. There are lots of essential costs involved in running a Sole Trader business, which bring down the amount of tax you owe.

Understanding how the these work is the key to getting the most from the Self Assessment tax return system. You can do this yourself, of course, but be warned that that are over 1000 pages of rules and regulations to understand if you want to be sure that you really have everything covered.

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VAT for Sole Traders

Do Sole Traders need to register for VAT?

Depending on your business, you might need to get yourself VAT registered. This means you'll be charging VAT to your customers, and reclaiming it on some of your costs. Generally, you won't need to register unless your turnover's going to top £83,000. That said, in some cases it works out better to sign up even if you don't have to. Again, RIFT can talk you through this and help you decide what's best.

 

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Tax Return For Sole Traders

Is it risky to be a Sole Trader?

There are a few basic steps you can take to keep your Sole Trader business a little safer. For example:

  • Set up a business bank account. This isn't something you're forced to do, but it's still a good idea. Keeping your personal money separate from your business cash can avoid a lot of headaches later on. Shop around for a good deal, too. Don't just automatically stick with the same bank you use for your personal account.
  • Get some business insurance. There may be some insurance you legally need, like Employer's Insurance if you hire people. Other types may be expected by customers, or just generally wise. The point is to consider what you need now, then what you might be glad you had later.
  • Come to RIFT with any Self Assessment questions or problems you're having. Our fixed-rate fees for taking care of your tax returns start at £95+VAT. Use our free online Tax Return Calculator for a quote.
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Setting up as a sole trader

How do I set up as a Sole Trader?

The main thing you'll definitely need to do as a Sole trader is register for Self Assessment tax returns with HMRC. This is absolutely essential, and it's important to get it done right. If you've got any questions about Self Assessment, or need help registering or filing, talk to RIFT. We'll guide you through the whole process, and our stand-alone tax return service is ideal for Sole Traders.

The moment you decide you're choosing the Sole Trader route, you should let HMRC know. Starting to trade without telling the taxman brings some nasty penalties, which you'll definitely want to avoid. You won't need to register your business with Companies House, but you might choose to do so anyway. It can be useful from the point of view of protecting your brand.

Setting up as a Sole Trader

Setting up as a sole trader

I'm thinking of setting up as a Limited Company

Limited Companies are safer than working as a Sole Trader, as your personal money is more protected. It's a more complicated way to work, and more expensive to get started, but it's a good step for growing your business.

For Limited Companies, RIFT can do a great deal more than handle your Self Assessment tax returns. Our full-service accounting package can protect and grow your whole business for a simple monthly fee. We can even help you get your business set up with HMRC and Companies House. Meanwhile, we'll handle your personal Self Assessment returns as part of the service at no extra cost.

Talk to RIFT Accounting. We're the guard dog, guide dog and watchdog your Limited Company needs.

 

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