Sole trader is the simplest way to start a business as setting up is quick, easy and preparing sole trader accounts can be simpler. There are many people who start their business as a sole trader and then later on they incorporate it as a Limited Company. However, being a sole trader business involves some personal financial risk. Sole traders must pay their debts if their business fails. The convenience or not of this structure for your business depends on many factors that we should analyze in detail.
You must register your sole trader/self employed business with HM Revenue & Customs (HMRC) as soon as possible (even if you are only running your business on a part-time or casual basis), otherwise you could be fined up to 100% of the tax due, in addition to the amount of tax unpaid.
Additionally you will pay income tax on any business profits by filling in a self-assessment tax return each year, stating your income and expenses. You'll also have to make flat-rate Class 2 National Insurance contributions (NICs) throughout the year, and also Class 4 NICs, if your annual profits exceed a certauin level. You pay this with your income tax and the figure is calculated from your self-assessment tax return. You must keep detailed financial records for your business, as well as proof of any expenses (such as receipts, invoices, utility bills, etc). All of these are necessary when your tax returns are due. Furthermore, if, as a sole trader business, you employ people, you must collect income tax and NICs from them too and pay these to HMRC.
The sole trader might seem easy to maintain but in the long run, any form of accounts and statutory work become time consuming and tough to maintain. At Taj Accountants, we are dedicated and will work on all your accounting an taxation affairs, freeing up your valuable time and making sure you comply with all your requirements and are taking advantage of all potential financial benefits. Visit our services page to know further in details what can we do for you.