What is a sole trader?
A sole trader is where an individual runs a business; essentially, that person is the business. This is distinct from a limited company, where the legal entity established is the business, but is managed by directors and owned by shareholders. There are many implications about your choice, such as tax and legal considerations to make, before deciding whether to be a sole trader or set up a limited business.
Sole traders are taxed on their income and the money they earn and they pay income tax, along with class II and class IV national insurance. The money they earn is theirs and can be drawn to spend personally as they wish (known as drawings). Again, this is different to limited companies, which have conditions around how they distribute earnings, typically through a salary, dividend or a director’s loan.
Tax is paid on the 31st of January each year, with the tax year running from the 6th of April to the 5th of the April the following year.
There are some shared factors though – both sole traders and limited companies can register for VAT and hire staff. Another myth is that after a certain point you need to move from a limited company, for example if your turnover exceeds a certain point. This simply is not true; Mike Ashley of Sports Direct fame for example, operated over 100 stores as a sole trader, although there may be other good reasons to consider incorporation at this point, such as tax planning.
A benefit though of being a sole trader is that it is a little simpler to get set up and you are wedded to the 31st January tax return window. Consequently, it also means our fees are typically lower for sole traders than the equivalent limited company, although that alone shouldn’t be the defining factor for being a sole trader.
How do we help sole traders
We have worked with sole traders both established and trading for years, as well as those starting out from scratch. Either way, we will work with you to ensure you are set up to succeed, with a good financial system in place to ensure you have a grasp of your tax and are aware of your obligations.
After the tax year has concluded, we will review your accounts and pull together your tax return and conduct a review with yourselves to ensure nothing is missed, including allowable expenses.
With your approval we will then file your claim with HMRC and advise you what is due by when, all in good time.
Construction Industry Scheme (CIS)
If you’ re involved in the CIS, find out how we can help, whether you are a contractor, administering the scheme, or a subcontractor with deductions being made from your pay.
Ready to start the journey?
To get help with your accounts and start freeing up your time to focus on growth, talk to the Mayflower team today.