Self Employed & Sole Trader Accounting

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Sole Trader (Self Employed) vs Limited Company

When you decide to become self-employed, one of the first decisions you’ll need to make is to decide on a business structure: operating as a sole trader, or through your own limited company.

There are a few traits that identify sole traders: you’re taxed as an individual (and don’t pay corporation tax), you have unlimited liability (your business isn’t considered a separate legal entity) and you have sole ownership over your business.

There are several reasons why the sole trader structure is the most popular option among businesses in the UK. It’s easy to set up—all you need to do is to register as self-employed with HMRC, choose a business name, and you’ll be all set to begin trading.

And if you change your mind sometime down the road—whether you decide to stop trading or to change to a limited company structure—the process of termination or transition remains fairly simple and straightforward. Unlike with limited companies, there’s no need to take additional steps such as applying to strike off your company.

You’ll also enjoy full control over your business, as there aren’t shareholders you’ll need to answer to. Sole traders also have fewer compliance requirements compared to limited company directors, which means that you’ll benefit from less paperwork, greater convenience and lower accounting fees.

How do I register as a Sole Trader?

How do I register as a Sole Trader?

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What is a Sole Trader

What is a Sole Trader: Meaning & Definition

What is a Sole Trader: Meaning & Definition

7 Characteristics For Defining Sole Traders

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Switching from Self Employed to Limited Company

You started out as a sole trader—but as your business scales, there comes a point in time where it becomes more efficient to trade as a limited company.

There are a few reasons why sole traders decide to make the transition. 

Their profits may have grown to the point where it’s more tax efficient to trade as a limited company. They may decide it’s time to bring in shareholders or directors, or feel that their business could benefit from the increased credibility that a limited company structure brings.

Here’s what the process of transition involves: firstly, you need to decide if you’ll be the sole director. After which, you’ll need to notify HMRC of the change, select a business name, and register your limited company with Companies House.

Once the registration is complete, there are a few more items to cross off your checklist. You need to inform your stakeholders, set up a business bank account, set up your payroll, update your company details on your business documents and get your accounts sorted out.

Registering a Limited Company Guide

Registering a Limited Company Guide

Registering a Limited Company Guide

  • What is a Limited Company
  • 10 step process for setting up a Limited Company
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Limited Company vs Sole Trader Calculator

Sole Trader vs Limited Company

Sole Trader vs Limited Company

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register for limited company guide

Key considerations when you register a Limited Company

Key considerations when you register a Limited Company

As a freelancer, contractor, or small business, it is typical to start with the simple structure of operating as a Sole Trader.

While taxes and other administrative work may be relatively easy when you are a Sole Trader, as your volume of business goes up, there are more and more reasons to take on the task of becoming a Limited Company.

For instance:

  • A Limited Company protects your personal assets. If you are found liable in a lawsuit, only your business assets are at risk.
  • A Limited Company is usually more tax efficient than being a Sole Trader.
  • Once you have your name chosen as a Limited Company registered through Companies House, no one else can take your company name.

Luckily, running a Limited Company doesn't have to be exceedingly complex, though following a set plan will help to keep the complexity to a minimum.

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3 ways to register a limited company

3 Ways to Register Your Company for Free

3 Ways to Register Your Company for Free

Registering a company is a one off cost of £12 and done through Companies House. However, there are a few different ways that you can get this fee waved with other business services that you need.

We'll walk you through how to register your company for free and the perks that you'll get with each.

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set up a limited company guide

How to set up a Limited Company

How to set up a Limited Company

When you set up a limited company, you'll enjoy many advantages you don't get as a sole trader. Not only is it a tax-efficient way to run your business, it's also a great way to limit your personal liability and increase your credibility with customers. Additionally, it could open new avenues of work that wouldn't be open to you if you were operating as a sole trader, especially some contractor roles.

One of the disadvantages of running a limited company is that it involves a lot of paperwork, but with the help of this guide, we'll clear away the jargon and tell you exactly what you need.

If you're unsure about whether a limited company is right for you, check out our handy article comparing the differences between Limited companies and Sole Traders to see which business entity is right for you.

If you've got more important things to do than dealing with extra admin, you can always take advantage of one of our accountancy packages and we'll do all the forms and applications for you.

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Limited Company Filing Deadlines

Being a limited company director comes with several legal responsibilities. In addition to your statutory duties, you’re also responsible for meeting your filing deadlines.

These include:

  • File your Self Assessment by 31st January following the end of the relevant tax year.
  • If you’re VAT-registered, you need to file your VAT returns 1 month and 7 days after your VAT quarter end date.
  • File your company accounts 9 months after your company year-end. If you’re in your first trading year, your first annual accounts are due 21 months after your date of incorporation
  • File your Confirmation Statement up to 14 days after the due date. The due date is 12 months after the date your company was incorporated, or 12 months after the date you filed your previous Confirmation Statement. 
  • File your company tax return 12 months after the end of the relevant tax year.
  • If you’ve just begun employing staff or using subcontractors for construction work, you need to register as an employer before an employee’s first payday. 
  • If you already have employees, there are a number of deadlines you need to meet for your payroll year end
  • Submit your final payroll report for the year before your employee’s final payday for the tax year ending 5th April. 
  • Provide your employees with the P60 by 31st May (following the end of the relevant tax year). 
  • File employee benefits and expenses using your payroll software, and submit your P11D and P11d(b) forms by 6th July.
  • In addition to the payroll year-end deadlines, you’re also required to:

Send the FPS on or before your employees’ payday. The FPS must be submitted each time you pay your employee. This means that if your employee is paid weekly, you’ll need to make 52 submissions across the year.

tax returns deadline guide

Company Filing & Deadlines: Self Assessment, VAT, Accounts, Tax & more

Company Filing & Deadlines: Self Assessment, VAT, Accounts, Tax & more

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deadline for tax return guide

Tax return and payment deadlines you need to know

Tax return and payment deadlines you need to know

Tax season can be stressful for small business owners.

You don't have the convenience of having an employer filing for you. While there are all kinds of tips and strategies for managing your taxes, the first order of business is to get key deadlines noted on your schedule, and determine how and when to make your payment.

Here's what you need to know:

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What are the deadlines for payment of PAYE taxes?

What are the deadlines for payment of PAYE taxes?

If you're paying salaries to employees or directors, you need to register for PAYE and pay your PAYE bill to HMRC.

  • Monthly payments: Your PAYE bill is due on the 22nd of the next tax month.
  • Quarterly payments: Your PAYE bill is due on the 22nd after the end of the quarter.

There are various ways to make your payment.

  • Same or next day payments: online or telephone banking, CHAPS
  • Payments processed in 3 working days: card payments (online), Bacs, cash or cheque payments at your bank or building society, Direct Debit, by cheque through the post
  • Payments processed in 5 working days: Direct Debit (if it's the first time you're setting up a Direct Debit payment)

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What are the late filing and payment penalties?

What are the late filing and payment penalties?

PAYE

RTI late filing will incur a monthly penalty of £100, depending on the number of employees you have.

Self Assessment

A late filing penalty of £100 is imposed if your tax return is up to three months late. The penalty increases if you're later than three months, or if you pay your tax bill late. Additionally, interest will be charged on late payments.

VAT

You may be required to pay a surcharge if you submit a late return. Surcharges for late payments or VAT return filings are indicated on the HMRC website.

Corporation Tax

HMRC's penalties are as follows:

  • 1 day late: £100
  • 3 months late: An additional £100
  • 6 months late: Your total corporation tax bill will be estimated, after which a penalty of 10% of unpaid tax will be imposed.
  • 12 months late: An additional penalty of 10% of unpaid tax will be imposed.

Company accounts

The following penalties for private limited companies will be imposed if you fail to file your accounts with Companies House on time:

  • Up to 1 month late: £150
  • 1 - 3 months late: £375
  • 3 - 6 months late: £750
  • More than 6 months late: £1,500


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What is your First Accounting Year End Date?

What is your First Accounting Year End Date?

The first accounting year end date for a new company is the last day of the month in which the first anniversary falls on. For example, if your company was incorporated on 15 January 2021, the first accounting year end date will be 31 January 2022.

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