As mentioned in “How it Works” if you opt for the Business service then the good news is that your sole trader will take care of all of your accounting needs. For those of you who are going to use Club or are undecided we have included below an overview of the accounting aspects you need to be aware of – in jargon free terms.
Self-Assessment Tax Return (SATR)
This is what you are legally required to complete and submit to HMRC before their January 31st deadline for the previous tax year. It requires you to submit all of your income and business expenditure for that tax period in a series of forms and documents – either offline or online.
The purpose of this return is to calculate what tax you are due to pay HMRC on your income for that year or if you are fortunate you may be entitled to a rebate. This is simply calculated by deducting the costs (expenses) your business incurred against the payments made to it and then working out the tax on the remaining figure.
For example, if your business had payments of £20,000 over the year and you had £5,000 costs, you would pay tax on £15,000 of the company’s income.
If you are not registered for VAT there is no need to worry about completing a return.
Using standard VAT accounting, you must complete four VAT returns each year. Any VAT due is payable quarterly, and any VAT refunds due to you are also repayable quarterly.
Using annual VAT accounting, you make nine interim payments at monthly intervals, or three quarterly interim payments, throughout the year. You only need to complete one return at the end of the year when you either make a balancing payment or receive a balancing refund. Annual accounting can reduce your paperwork and make it easier to manage your cash flow.
Using cash accounting, you do not need to pay VAT until your customer has paid you. If your customer never pays you, you never have to pay the VAT. You can use cash accounting if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million. You can continue to use cash accounting until your VAT taxable turnover exceeds £1.6 million.
With the Flat Rate Scheme you can reduce the time that you need to spend on accounting for and working out your VAT. Even though you still need to show a VAT amount on each sales invoice, you don’t need to record how much VAT you charge on every sale in your accounts. Nor do you need to record the VAT you pay on every purchase.
If you register for the Flat Rate Scheme in your first year of VAT registration, you can take advantage of an extra one per cent reduction in your flat rate percentage.
Keeping up to date with your business accounting or book keeping throughout the year is very important as it makes the end of year process much easier. This is why we give you free access to the Sage software if you sign up to one of our services. The good news though is that, unlike people who run their own limited company, as a sole trader you do not have to file audited annual accounts with Companies House.
Statement of Earnings
If you want to buy or rent a house, or maybe prove to everyone down the pub how much extra you are taking home by working with your sole trader, then simply get in contact with us and we can send you a statement of earnings. And the best part is that we’ll send them to you for free.
To find out more about what accounting requirements are expected of you as a sole trader then do not hesitate to call us on 0844 854 5220 or live chat with us now.