As a Sole Trader you and your business are legally considered to be the same entity. This is different from a Limited Company where the company is seen as an individual, separate from its Directors. This makes accounting arguably easier for a Sole Trader but also more risky in some situations.
If a Limited Company makes a mistake with their accounts it can sometimes shield the Directors from financial and legal implications. As a Sole Trader you do not have this protection. If there are any issues with your accounts HMRC will come after you, not your company.
Making mistakes scales from frustrating situations such as paying too much tax, to incredibly serious HMRC investigations with fines that could reach as high as 70% of your tax bill.
Common Accounting Issues for Sole Traders
Income Tax Liabilities: Other business structures may seem to have more complex tax requirements, but HMRC still places certain tax demands on Sole Traders. Understanding these is key in avoiding issues with HMRC
Banking: Many Sole Traders use a single bank account for both personal and business use. This makes things even more complicated however when it comes to understanding what tax you owe and reconciling personal and business transactions
Expenses: Clearly identifying what can be classed as a business expense is critical in ensuring you only pay the tax you owe. Whilst overpaid tax can be reclaimed, it is only possible if firstly you spot the overpayment and secondly can prove it to HMRC
Bookkeeping: The cornerstone of finances. As a Sole Trader it can become easy to blur the lines between what transactions are for you and what is for your business. Keeping accurate books is critical but also time consuming, repetitive and for many, boring
National Insurance Contributions: These are based on your income but vary in rate depending on company profits. This variation can make NIC a complicated affair. Do you know when you pay Class 2 NIC or Class 4 NIC for example?
VAT: Even Sole Traders have to pay it if their turnover exceeds £85,000. This means you need to become VAT registered, submit quarterly VAT returns along with making the correct payments on time.
If you do not have the in-depth knowledge or time to complete any of the above tasks, then you need people who can do it for you.
Alternatively, if you have been doing these tasks for years, you might want to ask yourself two questions:
Have I missed any savings I could have made?
Would my time on accounts be better spent growing my business?
What we Provide to You as a Sole Trader
We believe it is essential for businesses and their owners to focus on what is important to making their business grow. The best way of doing this is to only invest your time in the areas you are both passionate about and an expert in.
That is why we provide:
Your own dedicated accountant
Preparation of Sole Trader accounts
Self-assessment tax computation and filing
Xero cloud accounting software
Representation during HMRC investigations
If you want to know more about the ways we can help your business run more efficiently and grow. Then call us on 0161 442 2280