If you are working on the side or are full time self-employed, or setting up your sole trader business, online set-up, a shop or a freelance. We can help you on each step of your journey and will make is smoother. The UK Government data shows that over 75% of British small businesses are sole traders.
As a sole trader, you can choose the accounting period of your choice, but your fiscal year will not change. This means your tax return will be due each year on 31 January after the fiscal year.
Registration for taxes -- link
If you work for yourself and your income is more than £1,000 then you need to register for the self-employed. You have to notify HMRC 6 months after the end of fiscal year in which you have started working for yourself i.e. 5 October after the year end. You can register yourself with HMRC by filling up form CWF1 or contact us and we will do it for you.
For the sole trader choosing the name is less formal and you can choose any name unless it is protected or restricted. You can also use your own name than a separate business name.
Notifying that you're self-employed
Registering as self-employed with HMRC will tell HMRC that you're in self-employment and it is your responsibility to tell them that you're self employed. So, if you fail to notify HMRC on timely basis, then HMRC will charge you a penalty and it can amount up to 100% of the lost revenue to them. These penalties are based on behaviour of the self-employed such as careless error or deliberate.
Filing a tax return
As a self-employed you're required to file a tax return by 31 January after the year end and if you fail to file on the date you will incur a filing penalty of £100 and if failure continues then after 3 months HMRC will levy a daily penalty of £10 per day for 90 days, and the after
Income tax rates for the self-employed and employees are the same. However, relief for the expenditure for self-employed are more generous. HMRC has introduced some simplified schemes for self-employed and partnership businesses. Namely, cash basis, flat rate expenses such as use of home, mileage costs, trade allowance etc such as if a self-employed business has no or minimal expense they can opt for the trade allowance of £1,000, say a freelance writer only has £50 actual expenses on printing etc, he/she can claim a flat rate allowance of £1,000 and does not have to keep the record of the expenses.
Self employed individuals have different classes of national insurance contribution and rates are also different. You currently pay two different classes of NIC if you are self-employed - Class 2 and Class 4. Class 2 is a flat rate insurance charged at a weekly basis of £3.05 for 2021/22. Class 4 is charged in same way as to employment but the rate 9% which is 3% lower than it would have been as an employee.
Payment of income tax and national insurance
Income tax and national insurance for the self-employed are paid differently to employees. If the liability of total tax is below £1,000 a year, then you're required to pay by 31 January after the year end at the same tax return deadline. If your liability is below £1,000 and more than 20% of your tax paid at source, then a sole trader will make two interim payments on accounts. of his tax and Class 4 NIC based on the final amount due for the preceding year. Two equal interim payments are required; the first on 31 January during the tax year and the second on 31 July after the end of the tax year. Final settlement is made by 31 January following the end of the tax year.
If you fail to make the payment by 28 February, HMRC will charge 5% penalty on outstanding tax and this penalty will continue on 6 monthly bases thereafter until the full amounts is settle. However, you can arrange a payment plan with HMRC for 12 months and this will avoid the penalty charge on late payment.
Like other business when your turnover exceeds the threshold of £85,000 you need to registered for the VAT and can registered for the VAT on a voluntarily basis at any time. See VAT tax section
Sole trader can employee staff assist them and normal PAYE regime will apply.
Other business structures.
Being self-employed as a big decision and it has to be correct, and you should select the right business structure not only based on tax saving but also consider the other risks as well such as financial liabilities. As a sole trader, you are personally liable for any debts or legal action against your work.
As with any business, when you work as a sole trader, you should keep detailed records of all your income and expenses. You are required to keep them for 5 years and 10 months.
Require more information?
If you would like more information or would like to speak to us, then call us on 0208 050 4073 or if you prefer to contact us.