Starting a new business, taking on a new challenge!
As we start the New Year, we might feel that we need to start a new business.
As a result, this decision might be you quitting your old job and starting a new business.
What to do as you leave the old and start a new business :
You need to ensure that your old employer provides you with a P45. This is to ensure that HMRC is aware you have left the employment
If you receive a Child tax credit or income support, you will have to inform HMRC . This will prevent you from receiving too little or too much from them.
How to choose the business structure to use.
A business can be run as a sole trader, a partnership, a limited company, a charity or charitable organisation, a limited partnership, etc.
Running a business as a Sole Trader
If you decide to run as a sole trader, here are some compliance issues to be aware of:
- The business and the owner are the same therefore there won’t be a need to register a limited company to trade.
- The owner would have to register for self-assessment with HMRC.
- Deadline for registration is 6 months after the end of the tax year they started trading.
- They will have to submit the Self-Assessment return annually.
- Importantly return can be submitted by 31sts of October after tax year ended if a paper return is submitted.
- Or Deadline for online submission is of 31st of January.
Tax paid by the sole trader in running a business
Handing over tax-related issues to us ensures that your time is better spent. Our accounting firm in the UK meticulously take over the tax accounting aspect of your company. Unknowingly, many businesses pay much more than they should as tax. Some businesses even pay up to double the tax fees due to lack of specialization.
- Tax paid on the profit will be paid after their personal allowance has been deducted.
- During the tax year 2018/19 when the sole traders that have profited more than £6,205 in a tax year will pay Class 2 national insurance £145.60.
- For-profit earned from £8,482 – £46,350, Class 4 national insurance that would be paid on the profit will be at 9% of the profit.
- Any profit that goes over this threshold stated above, the taxpayer would pay an extra 2% on the difference.
Do you need a business bank account or not?
It’s not compulsory to have a business account if you are trading as a sole trader.
However, its good practice to open a business account or use a different bank account while trading.
Record keeping and accounting
When the sole traders turnover is below the VAT threshold (£83,000 for tax year 2018/19), they can use cash basis which allows them to account for transactions when cash is received or paid.
A sole trader can either claim flat rate for mileage at 45p per mile when they use the cash basis accounting or deduct the actual motor expense however private travel will be disallowed.
The records would be kept for 6 years after the tax year that it was used in a return.
Wages of sole trader:
If the sole trader pays wages to himself during the tax year, the wages would be disallowed and added back to the profit before tax is calculated.
When items of capital natures are bought, the expense should be disallowed and added back into profit earned in the tax year.
Consequently, if the purchase meets certain conditions, Capital allowance can be claimed as a relief.