As a sole trader, you must pay Income Tax on your profits above the personal allowance (£12,570). Additionally, you will need to pay class 4 and 2 national insurance contribution if your profits exceed specified thresholds. And if you employ staff, you are liable for Employer National Insurance Contributions on their salaries above a specified threshold. And finally, if your turnover exceeds £90,000, you need to register for and pay VAT.
If your company generates profits, it must pay Corporation Tax on taxable earnings. Additionally, if you employ staff, you are responsible for payroll taxes, including Employer National Insurance Contributions and mandatory pension contributions if employees have opted in. Lastly, if your company’s turnover exceeds the VAT threshold (£90,000), you are required to register for and pay VAT.
Payments on account (POA) are advance payments toward your next year’s self-assessment tax liability. If your tax bill exceeds £1,000, HMRC requires two equal installments. The first POA is due on or before 31 January, along with your current year’s tax liability. The second POA is due by 31 July. For example, if your tax liability this year is £1,200, you’ll pay £1,800 on 31 January (£1,200 for the current year and £600 as the first POA). The second payment of £600 will be due on 31 July.
Professional indemnity insurance offers protection for your business against a customer suing you for a financial loss that they believe you caused through negligent advice or services.
To prepare your management accounts, VAT return, corporation tax, statutory accounts and finally your self-assessment tax return, you need to keep records of all your invoices, bills and cheques. And for all the bank transactions you must know the reason behind it.
Deciding between a salary or dividends depends on your financial needs and tax preferences. Typically, an optimal combination of both is recommended. We normally suggest keeping your salary below the National Insurance threshold to avoid paying National Insurance contributions, while withdrawing dividends to take advantage of lower tax rates.
Choosing between operating as a sole trader or forming a limited company depends on several factors, including tax implications, regulatory requirements, and your business's growth potential. It’s essential to assess both financial and operational factors before making this decision. We recommend contacting us to help you choose the best structure for your business needs.
When you sign up with Taxoria you will be given details of how to contact to your accountant. Our prices are fixed fee so you can be assured that no extra bills will appear as long as you use the service fairly. You can get in touch with your accountant in variety of ways including phones and emails.
