Being a sole trader merely means that there is no distinction between the owner and the business because you’re run your own business as an individual and is classified self-employed.When you need to set up as a sole trader to file tax return
You can keep all your business’s profits after you’ve paid tax on. You’re personally responsible for any losses the business makes, and responsible for any risk involve in decision making. You must also follow certain rules on running and naming your business.
You need to set up as a sole trader if any of the following apply:
- you earned more than £1,000 from self-employment between 6 April 2020 and 5 April 2021
- you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits
How to set up as a sole trader
To set up as a sole trader, you need to tell HMRC on or before 5th October following the end of the tax year that you are self-employed, and you have pay tax through Self-Assessment.
Example: If you started a trading during the 2020 to 2021 tax year, you must register before 5 October 2021.
You’ll need to file a tax return every year by simply registering for Self-Assessment.
You’ll need to:
- keep records of your business’s sales and expenses
- send a Self-Assessment tax return every year
- pay Income Tax on your profits and Class 2 and Class 4 National Insurance
Must I register for VAT
You must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT.
Working in construction industry
Register with HMRC for the Construction Industry Scheme (CIS) if you’re working in the construction industry as a subcontractor or contractor.
You can file your tax return on paper on or before 31 October or 31 January for online submission to avoid late filing penalty.
In a partnership, you and your partner (or partners) personally share responsibility for your business. This includes:
- any losses your business makes
- bills for things you buy for your business, like stock or equipment
Partners share the business’s profits, and each partner pays tax on their share.
A partner does not have to be an actual person. For example, a limited company counts as a ‘legal person’ and can also be a partner. When you set up a business partnership you need to: The nominate a partner who will be responsible for managing the partnership’s tax returns and keeping business records. There are different rules for limited partnerships and limited liability partnerships (LLPs). Each partner must register with HMRC separately and the nominated partner must register the partnership as been charged with the responsibility of filing the partnership tax return.
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