This freeview ‘At a glance’ guide is essential reading for anyone who is thinking of starting in business on their own, as a sole trader.

If you are starting a new business and you want to consider other types of trading vehicle, check out A new business? Start here.

Starting self-employment

You have decided to trade as a sole trader, where do you go from here?

Article & link What you get

Starting work 4.  How to work out your tax if you are self-employed.

This guide and worked example shows you how sole traders are taxed and how National Insurance contributions are calculated.

Self-employment: Registering for Tax


You need to register for tax.

If you fail to notify HM Revenue & Customs (HMRC) you might be fined.

Find out how with this guide

Accounting: Simpler Income Tax (cash basis)/fixed expenses


Choose which method to draw up your accounts and which way to claim your expenses: 

Which accounts system for me?

Which expenses system for me?

  • You can claim actual expenses or a mix of flat-rate expense allowance and actual expenses.
  • It might be simpler to claim fixed rate expenses, but it depends on your business
  • See Flat rate expenses or actual cost toolkit

What about the trading allowance?

  • If your expenses are likely to be less than £1,000 per year, you can claim the £1,000 Trading Allowance against your income, instead of claiming actual expenses.
Record keeping & tax: What, how and until when?

 

What records need to be retained for tax purposes
and for how long?  

Accounting periods and tax basis periods  
  • When you start in business you draw up accounts for an 'accounting period'.
  • That period starts on the day your business starts, you can choose the date on which your accounting period ends.
  • From April 2024, all sole trader businesses that have accounting periods that are not coterminous with the end of the tax year will have their accounting period end moved to the end of the tax year. There will be a transitional year in 2023-24.

 

Reporting your profits for Income Tax Self Assessment

Sole traders have reporting requirements which include the need to file tax returns. How do sole traders calculate and report their profits?

Article & link What you get
 

Making Tax Digital: Survival guide (for the self-employed & landlords)

 

From April 2024 self-employed businesses with turnover above £10,000 will need to report under Making Tax Digital for Income Tax self-assessment. 

This means that you will need to use 'functional compatible software' that will allow you to report five tax returns per year.

Sales/turnover: Tax compliance

Business accounts must be prepared according to Generally Accepted Accounting Principles (GAAP) unless the business chooses to use cash accounting.  

If you are accruals accounting read this guide.

New UK GAAP: Unincorporated Businesses

 

Individuals and partnerships are required to prepare accounts and calculate their profits in accordance with UK Generally Accepted Accounting Principles (GAAP) for Income Tax purposes. There are simplified rules for cash accounting.

Do we have to prepare a balance sheet?

 

A balance sheet can be a useful report for all but the smallest of businesses. It provides a snapshot of the state of the business at its year-end. As part of the double-entry bookkeeping system, a balance sheet also provides evidence that the accounts balance, or that they have been made to balance.  

What expenses can I claim? (Guide)

 

An expense or part of an expense (when you can identify a suitable proportion) can be claimed as a deduction from taxable income when it is incurred for the purposes of your business.  This guide covers common expenses and gives examples.

What expenses can I claim? (Index)

 

An index of guides covering specific expenses and whether they are an allowable deduction in calculation taxable profits.

Wholly and exclusively …toolkit

 

A guide to help determine what expenses are allowable covering: What does 'wholly and exclusively' mean? How do you determine if a cost is wholly and exclusively incurred for the purpose of a trade? What cases are there?   

A to Z Index for different trades, professions and vocations

 

Different trades can have special rules that may allow certain expenditure as a deduction from profit. This A to Z guide provides links to specific considerations.

Extracting profits (self-employed)

 

The majority of businesses in the UK are run by sole traders. This guide looks at profit extraction from the perspective of the unincorporated business. 

 

The next steps

Future tax compliance under Making Tax Digital and other taxes you may need to consider

Article & link What you get

 

Making Tax Digital: survival guide

 

From April 2024 self-employed businesses with turnover above £10,000 will need to report under Making Tax Digital for Income Tax self-assessment. 

This means that you will need to use 'functional compatible software' that will allow you to report five tax returns per year.

Starting in business: VAT

Registering for VAT

Is voluntary VAT registration worthwhile?

When do self-employed individuals need to register for VAT?  If not obliged to register, is voluntary registration worthwhile? Find out with this guide.

 

Making VAT Digital

 

All VAT registered businesses will fall within Making VAT Digital (MVD) from April 2022.  Our guides on MVD can be found here.

 

RTI: Real-Time Information for PAYE

National Living wage rates/National Minimum Wage rates

Are you going to be employing people?  After registering as an employer, wages will need to be reported to HMRC via software for RTI.  

CIS: Contractors and Subcontractors

 

If your business is operating within the construction industry special rules may apply.  


Tax planning options can include:

Article & link What you get
Tax planning for income at marginal tax rates

 

This guide explores tax planning issue for different income levels which are around the various tax bands with a view to reducing the tax burden.

Losses, trade losses and sideways relief

 

Making losses: this guide explains how losses can be relieved for tax purposes.

A guide to incorporation: Start here

Incorporating of an existing business

Getting too big to be a sole trader? Incorporation is the process of transferring your business into a limited company.
 CGT: Rollover relief

 

If you dispose of a business asset, such as land and property, the business or its goodwill, the profit on disposal is subject to Capital Gains Tax (CGT).

It is possible to defer the gain by rolling it over against the cost of acquiring a replacement business asset. 

 Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of a business

 

Capital gains arising on certain assets can qualify for Business Asset Disposal Relief (formerly called Entrepreneurs' Relief).  This guide gives details of the various conditions and runs through how the relief applies to the disposals of various different asset classes.

 CGT: Holdover/Gift Relief

 

You can sometimes obtain CGT relief by rolling over a gain into the cost of a new asset, a similar relief is available on the gift of business assets such as those used in a sole trade.

 IHT Business Property Relief: Estate planning

 

Inheritance Tax (IHT) Relief can be available on businesses, this can include a sole trade.  Find the conditions and considerations here.

 

 


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