Self employed & sole trader

General

A self employed individual is effectively a sole trader where they work for themselves, charge for their goods or services, pay their running expenses and hire people if needed all for a view of making a profit.

Sole traders are not a company and therefore have unlimited liability.

Taxes

As a result of being a sole trader, an individual will be liable to income tax, class 2 and 4 national insurance contributions. A number of factors must be considered here such as profits, thresholds and any other income.

Appropriate records must be kept of all sales invoices/receipts, expenses, profits and any capital expenditure.

A tax return must be completed yearly and filed by 31 January following the end of the tax year.

Expenses

There are many expenses a sole trader is eligible to claim for to reduce their trading profits, however these must be costs associated to the running of the business.

Expenses can include the following:

- Subscription costs

- Travel costs

- Capital expenditure on tools, IT equipment etc.

- Protective clothing

- Staff costs

- Business rates

- Accountancy costs

Get in touch today to find out if any other expenditure you have incurred in the year is eligible.

Losses

Having a trade loss in your business is not always a bad thing, these losses can often be utilised in a tax efficient manner. Get in touch today to find out this could potentially mean you are owed tax.

Construction industry scheme (CIS)

This is for all of the individuals who work in construction. You will either be classified as a contractor or a sub-contractor.

The CIS requires contractors to make tax deductions on behalf of their subcontractors.

These deductions count towards the subcontractors' tax and National Insurance, spreading the payments out over time instead of one lump sum at the end of the tax year.

CIS applies to contractors and subcontractors. If you’re a contractor, you must register for CIS. You’re considered a contractor under this scheme if:

You hire subcontractors to perform some of your contract work.
You don’t run a construction business, but you’ve spent over £3 million on construction in the 12 months since making your first payment.

Subcontractors aren’t required to register for CIS, but it can be beneficial. If you register for CIS as a subcontractor, HMRC calculates deductions at 20%, instead of 30%. So you’ll pay a lower amount to HMRC every month.