April 12, 2017
2 Important UK Taxes for Sole Traders to Consider
If you’re the owner or manager of a small and perhaps local business, there are a plethora of aspects to consider when trying to maximise net profits and reduce expenditure. When your small business begins to grow more complex, the financial side of things can get overwhelming, that’s why help in the form of essential tax services can become a real lifeline.
While the majority of small businesses can benefit from the services that an established tax expert, accountant, or lawyer can provide, it’s important that you find the right tax company for the job. While some of the largest tax firms in the world lead the way in terms of managing finances and tax issues, these firms are not suitable for a small business. Your best bet as a small business is to always choose an accountant or tax expert who is focused on local law and issues, like this one based in Glasgow: http://taxkings.co.uk/
Below we’ll go through the 3 most important taxes that sole traders should know about in the UK. We’ll also look at how small business accountants can assist businesses with these types of matters.
A sole trader’s profits will have income tax deducted from them after it increases past the personal allowance, which is about £10,600 in one financial year. However, if you have multiple sources of income, these will often be considered together to come to a combined amount which will be taxed if it goes over the allowance.
A good accountant can configure where you’re money goes to maximise the amount of profit you receive at the end of the day; this is a great way to get more cash to reinvest in the business itself. The fact is that by investing your resources into areas of the business other than pure profit will often bring more long-term benefits overall.
Not only can a qualified and experienced tax accountant find ways to reorganise your capital optimally, their main benefit for many sole traders is that you’ll have your finances in order quickly and reliably as far as the people at HMRC are concerned. Finding an established accountant to carry out this kind of work is worth the time and effort, however, a quick online search will often bring up many worthy candidates, like this one in Belfast.
Two Types of National Insurance
Most small businessmen and women forget that sole traders will have to pay two different types of National Insurance (NI), Class 2 NI and Class 4 NI. Class 2 NI is around £146 a year, while Class 4 NI is an additional percentage of your total profits which will only pay assuming you make a profit of over £8,060 in a financial year.
How can an effective sole trader accountant help with this? Firstly, like Income Tax, a well-versed accountant knows that there are ways to reinvest your money into the business to keep your official profit figures below a threshold in order to get more bang for your buck. Secondly, because private limited companies pay NI a little differently to sole traders, they can advise you on when it’s in your company’s best interest to move on up to becoming a fully-fledged Ltd.
Financial advice is often a part of what small business accountants can provide sole traders that are sometimes overlooked. At the end of the day, it is you as a sole trader who is ultimately responsible for where your capital goes and more importantly, where it doesn’t.
Many small business accountants offer free consultations which you should definitely take advantage of. This is simply an introduction to the taxes that sole traders will have to know about and consider in their financial plans if they want to increase their chances of success; you can find out more about these taxes on the UK Government’s official website.