There are some definite advantages to being a sole trader, mainly surrounding keeping things simple, for example:
- There are no formation costs when setting up as a sole trader
- Sole traders are not required by law to have annual accounts, nor to file accounts for inspection. However annual accounts are necessary for tax returns
- Sole traders are unrestricted in the amount and purpose of borrowings
- Losses generated by a sole trader can be set against other income for the year or carried back to prior years
Tax make-up of a Sole Trader
- For a sole trader, tax is generally paid by instalments on January 31st in the tax year, and July 31st following the tax year. For an ongoing business, tax for 2012-13 is payable: first payment on January 31st 2013, second payment on account on July 31st 2013, with any final due on January 31st 2014
- A sole trader will pay Class 2 NI of £2.50 a week plus Class 4 NI, whicxh depends on their level of profits
- Profits are taxed at 40% on taxable income in excess of £35,000 and at 50% over £150,000 (2012-13)
Call Advance Accountants (Milton Keynes) today to discuss any further questions you might have about becoming a sole trader.
