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If you’re a sole trader, being aware of your tax obligations is important, but so is knowing how to best maximise your tax-efficiency. As sole trader accountants, we help self-employed individuals to make the most of their business accounts – and ensure that they submit all returns correctly and on time.

So, we’ve put together a few tips and bits of tax advice to help sole traders along the way. We’re also on hand to answer your questions, so fire us a message or call us if you’re looking for tax advice.

Register with HMRC

One of the first things you should do when you start a sole trader business is to tell HMRC that you’re now self-employed. This applies whether you’re only working in your new venture or you have it as a side job while you’re still permanently employed.

If you don’t register on time, you could be fined. HMRC recommends that you register as soon as you begin trading so, if you do this, you won’t run into issues.

Keep Records of Everything

As a business owner, you must record everything, from transactions to expenses. While you don’t have to include everything in your self-assessment return, you need to keep it on hand in case HMRC wants to see proof of what you declared on your return.

With Making Tax Digital, you should start keeping digital records to better organise yourself. Self-employed businesses and landlords with income above £10,000 will have to follow Making Tax Digital rules after 6 April 2023, so start now to make it easier on yourself later.

Keep Your Sole Trader Tax Allowance in Mind

Your personal allowance has changed in the tax year of 2021/22. While it’s been £12,500 for a couple of years now, the government boosted the allowance on 6 April 2021 to £12,570. This is a small change, but which means self-employed individuals should pay a little bit less tax.

However, because the government is freezing this figure until 2026, you may start paying more taxes if your earnings go up.

The current tax rates are:

  • Basic rate – 20% on income between £12,571 and £50,270
  • Higher rate – 40% on income between £50,271 and £150,000
  • Additional rate – 45% income on income over £150,000

Find out more about reducing your tax as a sole trader with Gorilla.

Stay on Top of Important Key Dates

Meeting deadlines will save you money both in the short and long term. If you don’t submit your tax returns on time, HMRC will fine or penalise you, which can be costly.

Some of the deadlines you should keep in mind include:

  • 5 October 2021 – If you’ve just set up your business or began receiving income form properties, you can until this day to register with HMRC as self-employed.
  • 31 January 2022 – The date to file your self-assessment returns and pay any tax due for the tax year of 2020/21.

As your self-assessment accountant for tax returns, we can handle your returns and ensure that all the right information is there. You can get this service as part of our sole trader package or as a stand-alone service, so speak to us for more details. You can also take a look at what you should do if you leave your self-assessment for last minute.

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Consider the New Points-Based System

HMRC will soon have a points-based penalty system for self-assessment tax returns, which they believe will make everything “fairer and more consistent”.

The government says the new system is meant to penalise only those who often fail to meet their tax obligations instead of penalising people who make mistakes. This change will only come into effect in April 2023, so there’s still plenty of time to learn more about it.

In essence, you’ll get a point every time you miss a deadline and, when you reach a certain amount of points, you get a £200 penalty. The points expire after two years but, if you’ve reached the maximum amount of points, you have to settle your tax obligations before the points clear.

Consider Your Capital Gains Tax Rates (and Stamp Duty)

Disposing of an asset often means having to pay capital Gains Tax.

If, as a taxpayer, you pay a tax rate of 40% or 45% (higher or additional rates), you must also pay 28% on your gains from residential property and 20% on your gains from other items, such as business assets. If you pay 20% tax, the capital Gains Tax you pay will depend on the gain, the amount of income that can be taxed and the type of asset you disposed of.

As accountants for landlords, we’re also on top of the stamp duty news. The stamp duty holiday was extended to 30 June 2021 for the first £500,000. Then, until 30 September 2021, you won’t have to pay stamp duty on the first £250,000. If you’re looking to expand your portfolio, now’s the time to do it.

At Gorilla Accounting, we can help you manage your properties and business. We offer differently-priced bands that depend on the number of properties you have and on whether you’re a sole trader or limited company. Get in touch to learn more.

Make Pension Contributions

It goes without saying that you need to start planning for the future. When you’re employed, you don’t have to worry about making pension contributions because your employer takes care of everything for you. However, when you’re a sole trader or the owner of a limited company, you need to do it yourself.

When you make contributions, you’re not just preparing for the future, but also helping to reduce the amount of tax you pay. If you make pension contributions, this will reduce your taxable income by the gross amount contributed.

Claim Expenses

When it comes to other sole trader tax deductions, you may be able to claim your expenses back. If you’ve not been claiming anything, you may be paying more tax than you should. The list of self employed expenses includes things like bank charges, insurance policies, business travel, charitable donations, computers and software, and more.

Get in touch and we’ll help you figure out what you can claim. The same applied if you would like to know more about limited company expenses.

Get Insurance

Being insured can protect your livelihood against third-party claims, as well as against accidents, injuries and natural disasters. Not only can you claim these expenses back, but you’ll also have peace of mind while working.

And, if something happens, your insurance can also cover court costs and pay-outs – some types of insurance can even provide you with a wage if you lose your salary for any reason (for example, because of the pandemic).

Stay Organised

Staying on top of your accounts and, therefore, never missing a deadline, is easier than ever with a dedicated bookkeeping tool. With FreeAgent accounting software, you can manage your accounts from anywhere in the world and from any device. You also receive information in real time, meaning you can make informed business decisions in the moment.

This tool is also Making Tax Digital-compliant.

Incorporate for Increased Tax Benefits

There will likely come a time where your sole trader business model may not be as tax-efficient as before. While this may not seem like a good thing, the truth is that it means your business is growing. Setting up a limited company means you don’t have to pay tax on income above your personal allowance. As a limited company, you have to pay corporation tax and dividend tax.

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We can help you when it comes to sole trader tax relief, to submitting your returns, and with anything else you require. And, if you decide to incorporate, we can continue to manage your accounts because we’re also limited company accountants.

Speak to us on 0330 024 0406 or send us a message and we’ll be happy to advise you in regard to the tax efficiency of your sole trader business or offer general contractor tax advice.