A Guide To Tax For Sole Trader Start-ups

When opting for the self-employment route, whether you’re paving a new career path or undertaking some solo work outside your day job, the likelihood is the tax aspect won’t come naturally. Your brain may be swarming…

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Last Updated: 26th September 2023

When opting for the self-employment route, whether you’re paving a new career path or undertaking some solo work outside your day job, the likelihood is the tax aspect won’t come naturally.

Your brain may be swarming with questions: How do I pay tax without an employer deducting it from my payslip? What forms do I need to fill in? When do I pay the tax? Is there any way to make tax savings?

Don’t fret about your finances. GoSimpleTax has covered everything you’ll need to know in our start-up guide to tax. Read on for a breakdown of the essential steps to tax zen:

Register as a self–employed Sole Trader

To let the government know you’re self-employed, you can register as a sole trader. Many people start out as a sole trader, as the accountancy responsibilities are less than a limited company or partnership. This guide concentrates on helping sole traders.

When setting up as a sole trader, you’ll need to submit a Self Assessment tax return and keep track of all sales and expenses. You won’t need to worry about additional taxes, but this does mean you will be personally accountable for any business losses.

Once you’ve registered with HMRC, you’ll automatically get a Unique Taxpayer Reference (UTR). This is your 10-digit reference number. You can find it on notices to file a return and payment reminders, and it’ll allow you to log into the Government Gateway where you can use their tax services.

Set up a business bank account

If you’re often using your personal bank account to pay for business expenditures, or have employees who do, then it’s a good idea to set up a business bank account to separate personal finances from business-related ones.

The type of business bank account you set up will depend upon certain factors, including your bank. They’ll likely have a diverse range of accounts for different sorts of businesses, such as ones of a certain size and annual turnover. The best choice is to opt for a bank that specialises in start-ups like you.

Your business will likely be expected to meet specific criteria, and so need to supply certain information – like the number of employees. You’ll definitely be required to provide evidence that validates your business and identity, as banks must be compliant with money laundering and identity theft regulations.

The bank will do a credit check, and information and documents – such as your passport to prove your identity, and business bank or credit card statements that demonstrate its trading address – will need to be provided.

Remember key dates

You should keep track of when you need to submit the required data to HMRC, as missing deadlines can result in penalties. Anyone that has become self-employed needs to complete and submit a Self Assessment.

The key dates you should keep note of for this are as follows:

  • Register for Self Assessment – By 5th October (after the end of the relevant tax year)
  • Submit paper Self Assessment tax return – By 31st October
  • Submit online Self Assessment tax return – By 31st January
  • Make a Payment on Account – First instalment of your tax bill is due 31st January, the second is due 31st July

Depending on the legal status of your business and earning model, you may also have to consider:

  • VAT if your turnover is likely to exceed the registration threshold (£85,000 in 2018/19).
  • Payroll if you are looking to take on employees.

These come with their own key dates, many of which are dependent on the tax year of your business. HMRC should make these clear when registering for VAT and/or incorporating your limited company.

Start saving

Tax isn’t deducted from your wages when you earn outside of PAYE – the earnings will go into your account and you’ll need to submit a tax return. It’s a good idea to put some money aside from your income to pay any future tax liabilities so that you’ll be able to afford the payments when they come around.

In the first year of self-employment, it is difficult to determine how much to put aside for tax, but a guide would be 20%. As the business becomes established, you will be able to gauge this more accurately.

What is important, however, is that you have set some money aside when it comes to paying your tax – failure to pay your taxes on time can lead to interest charges and penalties being imposed by HMRC.

Bear in mind, too, payments on account. These are advance payments on the next year’s income tax, based on the value of the current year if it is over £1,000. January’s deadline will cover half of the current amount owed, with a further payment expected in July.

Assuming your earnings have remained broadly the same, you will have paid the year ahead’s tax bill. As this is your first year filing a return, you may need to pay the year’s tax plus 50%, so always set aside a little extra money.

This is another reason why having a business account is ideal, as you’ll have a place to put any earnings and not be tempted to dip into them for personal activities. If any employees use the business bank card, set cost limits on their expenses to ensure that there’s enough money left for paying taxes.

Begin record keeping (bookkeeping)

The only way to have a real-time amount of the tax owed throughout the year is to keep track of what you’re spending and receiving. You’ll need to keep a log of all your accounts – everything will need to be kept, including receipts for expenses.

This is much simpler and quicker to do when you have tax software to instantly submit the data to. GoSimpleTax will analyse any data you input, work out the calculations for you, and provide tax-saving suggestions and tips along the way. Not only will your taxes be significantly more straightforward, your tax liability will likely be reduced.

You can take pictures of your receipts as you go, submitting them into your account directly. And you can even use our mobile app to submit your Self Assessment. Whatever your needs, GoSimpleTax has you covered with bronze, silver, gold and partnership packages available.

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If you’d like to try before you buy, then you can take a free 14-day trial of our tax software. If you have any questions, contact the GoSimpleTax team and we’ll be more than happy to answer them.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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