Eligibility
• If you make over 1,000 in the tax year (currently: April 6, 2019 to April 5, 2020)
• Working as a freelancer, or doing “odd jobs” where you get paid as a contractor rather than via payroll
• Within your first 2 years of business (please note, if you do not fill register for self-assessment by October 5th in your second year, you may be subject to fines)
Setting up
• You will need to register for self-assessment
• You must file for Class 2 National Insurance. The current small business profit threshold is £6,365, if you make less than this, you do not need to pay into the class 2 NI. If you make more, you must make weekly payments of £3.
• You must also pay into Class 4 National Insurance. Your first £8,632 is NI free, but once you pass this threshold (provided you make below £50,000), you must pay 9% into the NI system.
Please note: these figures are based on profits and not total earnings.
Running
When you have your sole trader registration set up, you must go about running your business. Please keep in mind, you are required by law to file your taxes annually no matter how much money you make, or even if you have a loss at the end of the tax year.
The tax year is: April 6 – April 5.
For this reason, you must maintain records for everything you do. Your sales and expenses are the most important. The easiest way to do this, is to create a business bank account that you solely use for business purposes. Most cloud accounting software will allow you to sync your account with the system, allowing for an easier bookkeeping method. You may also want to hire a bookkeeper as well.
Once you reach £85,000 in turnover, you must register for VAT. Whilst this is not necessary until you are over this threshold, it may be useful if you are selling to other VAT registered companies, and want to re-claim the VAT paid on these goods.
The HMRC has now made tax digital, so this process is getting easier and easier. However, it is important to consult a professional, as filing the wrong VAT returns may result in fines.
Taxes
File your taxes through your government gateway login, through your self assessment. The tax year runs from April 6th – April 5th, and you have up until the 30th of December of that year to file (online).
Have questions? Need help? Reach out to one of our experts at info@cooperfinancials.com to learn more about how you can set up and run your sole trader smoothly.