A sole trader is a self-employed individual who owns their own business. They are entitled to keep all of their profits after taxes are deducted, but they are also liable for all losses that the business may incur.
Setting up as a sole trader
To set up as a sole trader, you will need to inform HMRC that you pay tax through self-assessment, and will need to file a tax return every year. This is to ensure that you pay the right amount of Income Tax and National Insurance. To register, you will need to fill in a CWF1 form.
You need to set up as a sole trader if any of the following apply:
When do you need to register?
You should register for self-assessment as soon as you can after starting your business but you will need to ensure you have registered by 5th October in your business’s second tax year otherwise you could be fined by HMRC.
For example, if you started working as a sole trader in August 2020, then your first tax year was 2020-21, and your second tax year is 2021-22, so therefore you will need to register before 5th October 2021.
How to register
Once you have registered, you will receive a letter with your Unique Taxpayer Reference (UTR) number which should take around 10 days to arrive (21 if you are abroad). You will need this number to be able to file a return. Shortly after, you will receive another letter with an activation code.
Once you have activated your account using the code you will have received, then you can file your tax return at any time before the deadline.
One of the main responsibilities as a sole trader, aside from filing self-assessment tax returns and paying Income Tax on profits, is accurate and detailed bookkeeping.
You do not need to send your records in when you submit your tax return as a sole trader, but you need to keep them so you can:
- work out how much money you have earned as well as your expenses to complete your tax return
- show them to HMRC in the event that they launch an investigation against you so you have all of the relevant evidence that they require.
How Blue Spire can help
Filing your self-assessment can be a daunting task, but our experienced team can get you registered for self-assessment and set up with a perfect record-keeping solution, as well as making sure your tax returns are filed well ahead of the deadline.
|If you have any questions or need advice on any of the above, then please do not hesitate to contact us.|