Sole Traders – The Accountancy Need To Knows

As a sole trader, your main priority is, of course, going to be the day to day running of your business. If you’re passionate enough about your trade to have set up a business to work through doing it, then of course, that will be your focus. But, like the angel on your shoulder, PaperRocket are here to gently remind you not to neglect your legal and accounting responsibilities that you now have. So, here is a rundown of what you need to ensure you take care of, to avoid falling foul of the law and taxman.

Naming your business

If you’ve only just taken the plunge and set up your sole trader business, then this will most likely be your first step in setting up your business. For limited companies, this step is a requirement as part of the registration process with Companies House. Whilst you don’t need to register with Companies House as a sole trader, you will still want to choose a name for your business that you trade under. Many people may choose to trade under their own name, but some will want something perhaps a bit more unique. You just need to ensure that the name:

– Isn’t offensive

– Doesn’t include ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’ as these would allude your company structure to be different from what it actually is.

– Be previously trademarked (so always do your research on any name you choose to make sure it’s not already in use).

– Contain any sensitive words or words that could imply a connection with government (unless previous approval has been granted).

Register for Self Assessment

The second step, and what HMRC would argue is probably the most important is registering for self assessment, to allow you to submit annual returns to declare your income (and pay any tax required). As a sole trader, if you will be receiving income over the trading allowance (currently £1000), you will need to register as self employed and declare this untaxed income on an annual self assessment return. If you are not already registered for self assessment, then you will need to do so to let HMRC know to expect a return from you (and be issued with your own unique tax reference number to allow you to do so).

You can register for self assessment with HMRC here (either online or via a paper form).

Filing your self assessment return and paying your tax

Once you are registered for self assessment, you are then obligated to submit annual self assessment returns to declare your income. The self assessment year runs from 6th April to 5th April the following year. So, the 21/22 tax year is 6th April 2021 to 5th April 2022. Once registered for self assessment, you are then required to submit returns for the tax years to declare all personal income received for the year. You have until 31st January the following year (so 31st January 2023 for the 21/22 tax year) to submit your return and pay any tax due.

Self assessment returns can be complex, so it is always worth considering whether you want to employ an accountant to assist with the preparation of this.

Maintain your business records/employ an accountant

Whilst it is certainly not a legal requirement, many sole traders also like the security of using a cloud accounting software (such as FreeAgent), as well as employing an accountant to help ensure that all their accounting responsibilities are met on time, and correctly.

Whether you have an accountant/use cloud accounting software or not, some top points to bear in mind when it comes to maintaining your business records are:

• Keep on top of your records. We cannot emphasise this one enough, but we’ll just say it one more time… keep on top of your records! There is nothing worse than on self assessment deadline day, trying to sort through a shoebox of receipts trying to decipher what needs to be included on your return. Trust us, future you will be very grateful if you set aside a but of time each week to maintain your records properly.

• Set up a bank account. Again, this isn’t a mandatory requirement for sole traders (unlike limited companies) but if your sole trader business is your main source of income (rather than a small, side-line business), you’d probably be wise to set up a separate bank account for it, just to make keeping track of your business expenditure/income easier.

• Keep your records for a minimum of 6 years. HMRC guidelines state that this is required, and if they were to investigate your company, they would expect to be able to view any invoices, bank statements and receipts going back for the last 6 years (scanned copies are fine).

Keep an eye on your business turnover

Many sole traders choose to register for VAT voluntarily as it means that they can reclaim the VAT on any vatable expenses incurred. However, if you choose not to, then you will need to keep an eye on your business turnover as, if you make sales of £85,000 or more in any 12 month period (or expect to), then you are legally obliged to register for VAT. You will then be required to charge VAT on your invoices and submit VAT returns to HMRC to declare and pay any VAT due.

PaperRocket Accounting provide accounting and tax services to professional contractors, freelancers, and small businesses working in the UK.

We offer our clients a flexible choice of fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.

Each of our clients is given their own dedicated qualified accountant with unlimited access in person, telephone, or by email.

We pride ourselves on our client satisfaction and customer service and were awarded ‘Best Contractor Accountancy’ firm 2020 in The Contracting Awards and ‘Welwyn Hatfield Business of the Year 2019’ in the SME Hertfordshire awards.

To find out how we can help you please get in touch now.

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