Sole Trader Tax Returns

As the name suggests, if you’re a sole trader you’re someone who runs a business as an individual. There’s no differentiation between you or your business, so you’ll be personally responsible for any losses and business bills. It’s also your responsibility to make sure that you keep accurate and up to date records.

If you’re just starting out, navigating sole trader tax returns and National Insurance can be a bit of a minefield. You’ll probably be wondering ‘what’s the sole trader tax rate and how much national insurance do I need to pay?’ Here at Accountancy Solutions, we’ve got everything you need to know with our guide to sole trader tax returns.

Do I need to set up as a sole trader?

You’ll need to set up as a sole trader if you earned more than £1,000 from self-employed means between 6th April 2018 and 5th April 2019. Additionally, you may also want to register as a sole trader if you want to claim tax-free childcare or if you want to make voluntary National Insurance payments to help you qualify for certain benefits. Once you’ve set up as a sole trader, you’ll then need to register for self-assessment and be sure to complete a sole trader tax return before the deadline.

Sole trader tax returns – what do I need to include?

When completing your sole trader tax return, you’ll need to make sure you include details of all your taxable income. This will include salary, business profits, rental income (if you’re a landlord), bank interest and dividends. To help you complete your sole trader tax return accurately, it’s a good idea to keep any of the following:

  • Business invoices
  • Receipts for fuel and any business expenses
  • Business bank statements
  • Wage slips if you employ anyone
  • Any loan details
  • P60’s
  • Rental statements
  • Pension statements
  • Dividend vouchers

Sole trader income tax

Your sole trader income tax is based on your self-employed income. You’ll be entitled to the standard personal allowance (up to £12,500), then after this you’ll need to pay the following:

  • Basic rate: anything after your personal allowance up to £50,000, you’ll need to pay 20% tax
  • Higher tax rate: anything after the basic rate up to £150,000, you’ll need to pay 40% tax
  • Additional tax rate: anything over £150,000, you’ll need to pay 45% tax

It’s also worth knowing that if you earn taxable income over £125,000, you won’t be entitled to a personal allowance.

Sole trader National Insurance

When it comes to sole trader National Insurance, you’ll need to pay for two different types, class 2 and 4. Class 2 is a fixed rate of £3 a week, but if you’re earning less than £6,365 per annum, you may be exempt. Class 4, on the other hand, is calculated based on your profits. For anything up to £8,632, you’ll pay 0% tax, then anything between this and £50,000, you’ll pay 9% tax. If annual income is over £50,000 it’ll be 2% on any profits over.

If your businesses annual turnover is above £85,000, you’ll need to register for VAT too. Additionally, you’ll also need to add VAT to bills, and this can be claimed back on business costs.

Business bank account

If you’re a sole trader, it can be a wise decision to get a dedicated business bank account. Where it’s not actually a requirement, it can be incredibly beneficial as it can help you to keep track of your financial records. Additionally, some banks won’t let you use a personal account for business use after a while and may make you upgrade to a business account anyway. Most business bank accounts will be free for around the first year, then you’ll pay between £5 to £10 a month, plus transaction fees on top of this.

How Accountancy Solutions can help

If you’re struggling to work it all out and not sure where to start with sole trader tax rates, we can help! At Accountancy Solutions, we’re committed to helping you take the stress out of your finances so you can get on with the important stuff, like running your business. When you join us, you’ll get your very own personal accountant who’s dedicated to ensuring that your taxes are paid on time, every time. They can also offer valuable advice whenever you need it, all available at no extra cost. Want to enlist Accountancy Solution’s help with your sole trader tax return? Contact us today or give us a ring on 01633 288 299.