If you are a one man/woman business and intend to stay small for a while then perhaps a sole trader format would best suit your needs from day one. It’s a simple trading style and ideal if you suspect your profits will stay fairly low (say under £18,000 net profit per annum) for at least the first few years. As a basic rate taxpayer sole trader you will pay 20% personal income tax on your overall business profits (not what you take from the business) and you must add to that NI Class 4 at 9% on your profits over £8,424 and a small amount of NI Class 2 for the privilege of being a self employed individual. But don’t forget your personal allowance of £11,850 is deducted before you pay any tax (all rates quoted 2018/19 tax year).
It’s wise to remember that if your tax bill exceeds £1,000 HMRC will ask you to add half of that amount again as a ‘payment on account’ towards next years tax. This must be paid with your January tax bill and then another half will be requested in the coming July. The good news is if your profits next year are less then expected, then you will have paid too much on account and your tax payments will be reduced to compensate. Legislation for sole traders is pretty simple and if you expect to stay small or grow slowly then its a good place to begin your business adventures. Sole Trader Setup includes: Evaluation of your chosen trading style for legislative and taxation compliance, help designing a tax efficient salary strategy, registration of your new business and you personally with HMRC for Self Assessment Income Tax. If applicable we will also advise and register you for the most appropriate VAT scheme suitable for your trading structure and introduce you to a local Business Bank who can setup your first trading bank account.