One of the reasons is that, for one, a professional accountant who is specialized and is solely a business owner with the proper knowledge of expertise, experience and training will be more knowledgeable about how to navigate the complicated UK taxes. They’ll ensure that you are making the most of all tax reliefs or allowances that you are entitled to and will ensure that you are taking care of your expenses in a timely manner.
Additionally, many sole traders working for themselves find they’re in the red after retaining an accountant and that the costs they pay are less than the amount they’ve saved in taxes (not to mention penalty fees, e.g. due to late tax filing).
If you’re a sole trader looking to learn more about how a Sole trader accountants services could help you, take an interest in our article.
How do you define a sole trader?
The term “sole trader” refers to an individual who works for themselves and is sometimes known as a contractor. The company they manage is managed and owned by one individual.
There are many advantages when you are in charge of your company; the disadvantage of being a sole trader can be that it is not legally made between the person and the company – which may be a problem under certain conditions. As a sole proprietorship, that puts you at risk of personal financial liability in the event of any debts incurred, meaning that creditors can be able to pursue your assets if there are outstanding charges because you’re not regarded as an independent legal company.
Performers, tradespeople, editors, hairdressers, authors, IT contractors, and many other service providers usually conduct their business this way.
Self-employment means you pay taxes by self-assessment, not using PAYE. Additionally, you pay income tax, not corporate tax, as the limited company is required to do.
What documents must I keep for a sole trader?
The information kept by a self-employed individual must roughly match the requirements of the limited company. The law requires that every one declare any income that is not taxed in the source to Her Majesty’s Customs and Excise (HMRC). Your records must be clear and accurate and able to be examined.
Register process
The first thing that a newly self-employed business owner must do is start registering their business with HMRC. When you first register, you must submit the self-assessment tax returns and be liable for any taxes that you have to pay. Even if you’ve not earned a profit, however, you are still required to file an income tax return.
Your tax return will show your income, less expenses, and any other income earned by other avenues (e.g. dividends on shares, leasing properties, etc.). The difference between the turnover and the expenses calculates profit. So you earn profit from the remaining money after all of your business expenses have been taken into account.
Accounts for a sole trader
In order to file a tax-efficient return, you need to keep an accurate track of your income, sales and expenses for business (these will be your accounts). Bookkeeping is the process of keeping track of the total amount coming in (which you invoiced) as well as all the money that’s going out (which includes invoices that are received along with receipts).
Specific sole traders have VAT registration, which means you need to keep track of this and pay the amount you owe promptly (quarterly). If you have employees to work for you, you need to keep records of them as well.
If you received one among the self-employed five income assistance program (SEISS) grants from 2019 to 2021, You must report any funds you have received in your taxes for the two years in question.
It is essential to prove that your invoices are in line with your earnings and your receipts reflect what you’ve spent on expenses. It is crucial that whatever you write in your accounts as business expenses that you claim were paid for entirely solely and exclusively as a result of the operation of the business.
Two additional things:
It is essential to keep documents for five years. Establishing a separate business bank account is an excellent idea to keep the money that comes into your business separate from your financials. It’s also much more straightforward to keep clear and easily identifiable records when you have a separate business bank account.
Names of the company should be displayed on your letterhead as well as on your invoices on your website if you have one, and if you have an account for business, the account’s name should be the same as your company name. It is recommended to use your name on your records as well in the event that it isn’t your company name.
What tax does the sole trader pay?
The most significant taxes that a self-employed person must pay (depending on their income) include income tax as well as the national contributions to insurance (NICs).
These are billed at the rates listed below:
The introductory rate of income tax (20 per cent): £1.00- £37,500 (less personal allowance, which will increase in 2021/22 to £12,570)
Higher rate (40 40 per cent) Taxable income above £37,500
Additional rate (45 per cent) tax-free income of more than £150,000
2 Class NICs for fiscal year 2021/22 in the event of a profit that exceeds the £6,515 threshold (the “small profits threshold”), those who are self-employed will be paying an amount equivalent to £3.05 each month (£158.60 annually).
Class 4 NICs: If your income is more significant than £9,500 for the year 2020/21 of taxation, You will be required to pay 9% tax on any profits up to £50,000 and 2% of any profit that is greater than this.
The thresholds will be increased in 2022, on April 6, from £9,500 up to £9.568 and from £50,000 to £50270 each year.
What exactly does an accountant who is a sole trader do?
In the first place, a competent accountant will not only ensure that you are entirely legally compliant (that is, you don’t try to avoid tax), But they will also legally try to assist you in cutting down on your tax burden. You are required to settle (legal tax avoidance).
A professional accountant will ensure that you get reimbursed for every permissible expense you’ve made in conducting your business. Additionally, they will make sure you get the most from tax reliefs that you are eligible to receive.
An experienced online accountant can meet with you online in real-time! Digital accounting is time-saving and can make businesses more efficient. It’s a win-win situation for those working for themselves since the automation of accounting and bookkeeping tasks with technology and digitization is a way to ensure that accurate data is accessible immediately and accountants are able to hone their skills.
The costs for an online accountant could be manageable financially as it will give peace of mind and could result in a higher income. Accounting fees are tax-deductible.
Not only that, an accountant will help you save time so you can be more productive in managing your business and lessen your stress.
You could choose to take for your bookkeeping, and If you’re sure, however, an accountant is more than happy to take care of this too.
Bookkeeping
- Bookkeeping is a vital part of accounting.
- Invoice all forms of income
- Recording all receipts and business expenses
- Invoicing
- Checking statements and bank records against invoices
- If applicable, payroll
- If relevant, any documents in connection with some of these SEISS grants you might have received.
- If appropriate, VAT invoices are issued to customers / VAT is added to your account.
- Automated software for bookkeeping that is tailored to meet the particular requirements of an organization has revolutionized the process of bookkeeping.
The more transactions you have to track and record, the more invoices you have to issue and the more significant business expenses you’ll need to handle. It can be not easy to keep track of your bookkeeping. It’s complicated, and you should turn the task over to your accountant. In the same way, your accountant might assist and motivate you to manage your time and keep your bookkeeping up to date with bookkeeping software.
A reputable accountant can help you. One thing that cannot be negotiated is that you are entirely accurate in your bookkeeping. Consult with a free accountant now.
Self-assessment tax returns
The self-assessment tax return must be filed by anyone who earns other income or income that isn’t taxed at the source by the 31st day of January each year. It is your responsibility to pay what you owe and pay a lump sum to the account (if applicable) before July 31.
A tax accountant will not only prepare your tax return in a precise manner and accurately but will additionally calculate tax obligation and file your tax return online for you by advising you on what you could be liable for.
In addition to the peace of mind from knowing that everything is subject to scrutiny, analysis of an accountant will ensure that any irregularities are identified, and tax savings are discussed. Also, what you can be doing to save further in the coming years could be discussed.
The VAT threshold
VAT-registered sole traders must pay Value Tax on Added Value (VAT).
Because VAT is complex, it should be handled by someone who truly knows the ropes. VAT is a component of the price of a variety of different items across the UK. Solo traders with a turnover of greater than 85,000 pounds p.a. must be VAT registered and begin charging the customers with VAT.
All VAT-registered individuals must complete, submit and pay each quarter VAT tax returns for quarterly VAT returns to HMRC. Taxpayers who do not register for VAT on time have to submit tax returns, and payment can result in penalties and interest. The cost of errors is also high, So hiring an accountant to manage your VAT issues is an excellent idea until you’re confident that you’re in the know.
Xero is a cloud-based accounting software.
It’s confirmed: “Xero is fast, simple software that’s changing the way the world does the books.”
By using Xero, You can do the following:
Make invoices and get notes once the receiver has opened them
Connect your bank account to ensure that you can compare your bank statements to invoices and business expenses to determine how much money is available
Manage your employee’s wages and pay your payroll if needed.
Find out how your business is doing on the dashboard. You can see both the money coming in (business revenue) and cash going out (business costs), as well as keep a check on the balance.
Control your VAT accounts and submit your VAT return, if applicable.
Control business expenses and bills
Xero is safe and reliable and is preferred by the majority of accountants. It is user-friendly and can handle the tasks related to expenses and the management of income, bookkeeping and accounting on a computer and provides 24/7 online support.
The best part is that HMRC is also a fan. Whether you decide to handle your bookkeeping or hire an accountant to handle it, Xero can help you manage your business more effectively. Cloud is a cloud-based accounting company. Cloud provides Xero Cloud Accounting Services for sole traders. Could you find out more about it here?
FAQs
What is the price of sole traders accountants the UK?
The variety of fees you pay an accountant in the UK is averaging £30 per month up to £130 per month; that’s quite an extensive range. The amount you pay an accountant depends on what you’re asking them to do.
You could decide to perform your bookkeeping or have your accountant do this for you. You could have additional sources of income that are not related to the business’s income required to register for VAT or an external entity to manage your payroll. There is one thing that is for sure: hiring an online accountant who uses cloud-based software is an affordable and highly efficient method to handle your bookkeeping and financials.
Can I manage the accounts myself as a sole trader?
Yes, you can open your account by being a sole trader. The accounts of a sole trader are straightforward in certain situations and do not require to be filed or audited in Companies House as they do for limited companies. But what you are able to perform and how you must take care of it are the two issues to take into consideration here.
It’s okay to handle your bookkeeping, as you’re organized, efficient, organized and proficient with numbers, but preparing your bookkeeping takes a lot of time. It is essential to be accurate; however, choosing an accountant who’s not just trained to be exact but also has a deep understanding of taxes in the UK Tax system as well as tax legislation is a significant benefit, and it could ensure that you leave with more money than you’ve earned in your pockets.
Do sole traders get audited?
One of the advantages of being self-employed is the fact that it is easier to be burdened with the filing of the company’s accounts and other paperwork. Audits are not applicable to the sole trader’s accounts. However, all businesses need to ensure that their books and records and, as a result, the information that they provide in their tax returns is exact. HMRC has the authority to examine the business’s records, as the penalties and fines for errors, inexact filing and late payment can be severe should you be found guilty.
Call Account Ease Sole trader Accountants
The running of a small business as a sole trader could be a burden, especially when the company begins to expand. Acccount Ease provides full bookkeeping and accounting solutions specifically designed to meet the requirements of sole traders.
If you’re seeking to hire an accountant or bookkeeper, selecting the right person can be challenging. The best option is to choose one who is an associate participant in the Chartered Institute of Management Accountants (CIMA) and has impressive credentials and, most importantly, prior experience in the field.
Be sure to understand the structure of fees to ensure you avoid unanticipated costs. If you need help figuring out where to begin, Ask your colleagues, friends or family members for suggestions.
When it comes to how you handle your bookkeeping or accounts, the decision all depends on the person as well as the scale of the company. If you’ve got the expertise and time to manage your finances efficiently, you should try it and benefit from some of the excellent bookkeeping and accounting software that are designed to ease the process. However, if your business is a busy one and you wish to expand, hiring an accountant or bookkeeper is a wise investment and can help you achieve an increase in growth and profits.
Give us a call today 02081334599 or email us at askus@account-ease.co.uk
