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Simplicity is a key reason for the popularity of the sole trader business structure. Company setup is easy as you don’t need to register with Companies House so entrepreneurs can get their businesses up and running quickly and cheaply. And once they’re trading, personal ownership continues to make things simpler thanks to the reduced administrative and legal requirements and tax obligations.
Many of the red tape and formalities limited company owners face don’t apply. There can be some crossover such as the need for record keeping and self-assessment, but sole traders don’t have to hold directors meetings or file articles and memorandums of association or file annual accounts.
Tax is also simpler for sole traders as they don’t have to file corporation tax returns and if turnover is below £90,000 it’s not mandatory to be VAT registered which cuts out another layer of complexity as VAT returns don’t have to be calculated and filed.
As a sole trader you are classed as self-employed and if your business income is over £1,000, you must pay income tax on your profits. This is done by filing a self-assessment tax return annually with HMRC so your income tax liability can be calculated. To facilitate this, you must keep records of income and business expenses throughout the year. Your income tax bill must of course be paid, and you also pay class 4 national insurance contributions.
Self-assessments can be complex and time consuming, and there is a risk when doing your own returns as errors, inaccuracies or late filing will attract attention from HMRC and will usually result in fines or penalties being issued.
Because of the reduced admin requirements of the business structure, some sole traders may think that appointing an accountant is an unnecessary expense, favouring instead to handle their accounting and tax obligations themselves.
But the benefits of working with a sole trader accountant go way beyond just getting your taxes right and in this post we’ll examine how working with an accountant can help.
Meet Your Tax Obligations
When you appoint an accountant you’re putting your tax obligations into the hands of an expert. A sole trader accountant will utilise accounting software automation to calculate your self-assessment tax return in the background while you work as well as ensuring that it’s accurate and filed with HMRC on time.
This will save you a significant amount of time and also give peace of mind that you’re meeting all your tax obligations and that no penalties or fines will be forthcoming. Tax legislation changes regularly and having an accountant on your side means they will monitor this so you don’t have to. In addition to self-assessment, an accountant will be able to advise if it’s beneficial for you to register for VAT as well as which scheme is best and also handle your VAT returns.
Expert Strategic Advice
The support an accountant will give goes beyond just fulfilling your tax obligations. They will monitor the financial performance of your business and offer a wide range of advice on issues such as cash flow management, cost cutting and planning and forecasting all of which can prove invaluable to sole traders and boost business growth.
Sole traders also face an element of risk that’s inherent with the business structure. Personal ownership means that sole traders are personally responsible for business debts which can place personal assets at risk. Working with an accountant helps to mitigate this risk as they will identify threats and ensure that the business is financially resilient.
Tax Optimisation
Although there is reduced scope for sole traders to leverage tax-efficiencies compared to limited companies, this is still an area that a sole trader accountant can help with. Sole traders pay income tax on their company profits and certain allowable expenses can be claimed when submitting your self-assessment tax return. This reduces taxable profit which equates to a lower tax liability.
Allowable expenses are expenses incurred wholly and exclusively for the purposes of running your business. Some examples include business travel and accommodation, subscriptions, insurance, some working from home expenses and tech such as laptops, mobile phones, printers and software.
A sole trader accountant will ensure that you’re claiming all available deductions so you can be confident that you’re not paying more tax than you need to and will still be fully compliant with your tax obligations. It’s worth noting that potential tax savings can more than offset the monthly fee for an accountant.
Easy Record-Keeping
It can be difficult for sole traders to stay on top of their record keeping, but the accounting software you receive when you appoint an accountant can be a game changer.
Using the accounting software’s mobile app you can scan and upload receipts and digitally record expenses, and many other obligations such as invoicing and bank reconciliation can be automated. Although not a legal requirement for sole traders, having a separate business bank account helps to keep things organised.
Streamlined record keeping makes it easier to avoid backlogs and also keeps your records organised and digitally backed up, meaning the accounting software has all the information it needs to calculate your tax returns.
They Save You Time
Although sole traders don’t have as many reporting, accounting and tax obligations as limited companies, what does need to be done can still be time-intensive. Working with an accountant, therefore, is a huge time-saver.
As mentioned previously, the accounting software you receive eases the pressure in terms of admin by automating many laborious tasks. Beyond this, an accountant will monitor the financial health of your business, be up to speed with all the latest legislative changes that will affect you so that you don’t have to. They’ll also share the load in terms of strategic planning and monitor all upcoming deadlines.
When everything is added up, delegating your accounting responsibilities will save a significant amount of time which can be focused back on your work. An accountant will also save you stress and hassle and give you peace of mind that your affairs are being expertly managed.
Helping Your Business to Grow
The sole trader business structure is the gateway business structure for many entrepreneurs and self-employed people. They will start small, work hard and achieve growth over time.
Sole trader accounting goes beyond just handling tax obligations, and by engaging an accountant early sole traders can accelerate their business growth. An accountant will play a key role in providing strategic guidance in this regard.
As businesses grow, their accounting needs can become more complex. They might take on employees in which case payroll will be needed and an accountant can help with this. Turnover might hit the mandatory VAT threshold in which case an accountant will advise on the best VAT scheme and handle VAT returns.
Many sole traders will, in time, incorporate and an accountant can complete the company formation process as well as the additional accounting and reporting obligations limited companies face. They will also ensure that you maximise the benefit of the additional tax-optimisation opportunities that incorporation presents.
Sole Trader Accounting with Gorilla
Rather than viewing appointing an accountant as an expense, it should be viewed as an investment in your business in a business partner that will provide invaluable overarching support and guidance to effectively and efficiently manage your business finances, taxes and accounting needs.
As the UK’s most trusted accountancy firm, we are expert sole trader accountants and help sole trader businesses to flourish across a wide range of sectors. Our sole trader accounting package is great value at just £59 + VAT per month. Our fees are fixed and all-inclusive so you know exactly where you stand every month.
All our clients receive full access to industry-standard FreeAgent cloud accounting software and a same working day response is guaranteed for your queries. To learn more about our sole trader accounting service, request a call back today to speak to an accountant.
