Taking your very first steps as a sole trader? Then, it is time to learn a few things to prevent any early falls. First; prioritize the bookkeeping and second; do the first one accurately. Although we can all write our incomes and expenses, it is crucial to maintain an accurate record of your business income and expenses to understand your finances and track your progress against your both short and long-term goals.
In order to do everything correctly, you will need to be aware of taxes, insurances and other factors that can directly or indirectly affect your bookkeeping as a sole trader. While there are many who prefer to hire sole trader bookkeeping in London to cut the hassle and focus on primary tasks at hand, as a beginner you can also learn what it takes to set up and manage your sole trader account. Here is what to do as a beginner:
Open a separate bank account
Legally sole traders and their business accounts are considered as one entity so, technically you don't have to get a separate account. However, it is highly recommended by the small business accountant in London to open a separate bank account as it will be easier to keep track of your business finances.
There is more than one reason to open a separate bank account even if you are self-employed. You can make "trading as" to make your account more professional and instead of using your name you can identify business income and expenses that further helps you to file your self-assessment tax return.
Learn about taxes and National insurance rates
As a self-employed sole trader, you need to set aside some money for taxes which is recorded by self-assessment. Therefore, it is crucial to be aware of the tax thresholds and National Insurance contributions you are bound to pay as a trader.
Also read: Capital Gains Tax On Residential Properties
For income above the personal allowance, you will be taxed at the following levels:
- The basic income tax rate of 20% on any income is £50,270
- The higher income tax rate of 40% on income between £50,271 and £150,000
- The additional income tax rate of 45% will be applied on income above £150,000
You also need to comprehend that sole trader also need to pay class 2 and class 4 NICs. So, make sure you are keeping enough funds to cover all this.
Start the bookkeeping
When it comes to bookkeeping, sole traders can get some relief as they have minimal work due to the limited nature of their company. You need to keep a clean track of your income and expenditures. In order to do so, you must keep records of your receipts and invoices. As a beginner, it is recommended to hire sole trader bookkeeping in London to cut the hassle. As professionals with decades of experience in the field, they know how to maintain a transparent record of transactions to keep you out of any problems. You can visit lancingcotswold.com to learn more.
Claim all business expenses
Do you know as a sole trader you can claim a number of business expenses from HMRC? It includes:
- Cost of stock
- Bank charges
- Heating and lighting of your business premises
- Travel expenses
- Bank charges
If you are a sole trader working from home then, you need to note down that some of your home expenditure may also be tax-deductible. You can consult with a small business accountant to learn more about it.
Complete self-assessment tax return
As a sole trader, you may have already registered yourself with HMRC. You will get the necessary login details that will allow you to file your taxes before you run out of the deadline. However, if you haven't registered yet then, you can get a penalty right on the face.
Completing the self-assessment tax return is easier if you have detailed records with an account with HMRC. Make sure you are not making any mistakes while performing a self-assessment tax return.
Moreover, if you are lacking confidence then, consider hiring sole trader bookkeeping in London on your behalf at an affordable cost. Doing it can save a lot of valuable time, money, resources that you invest somewhere else to unlock more benefits. Plus, professionals can perform the bookkeeping with zero chances of errors while ensuring you stay away from any trouble with clear and detailed records. If you are looking for a reliable accountant for the task then, consider browsing https://www.lancingcotswold.com/ today!
You can also read: How Does An Accountant Save You Money?