In the UK, there are four different ways you can set up your business for tax purposes. They are Sole trader, Partnership, Limited Liability Partnership (LLP) and Limited company.

In the first of a four part series, we’re looking at sole trader status and offering an outline so you can decide whether it’s right for you and your business.

Sole trader

Being a sole trader is the simplest business structure available.  It’s for businesses where one individual is running the business. If your business consists of you and the tools of your trade, then this may be a suitable business structure for you.

The advantages of being a sole trader are:

• The business is simple to set up and simple to run;
• There aren’t as much paperwork or regulations as there are for limited companies;
• You don’t have to put your address on any of your business documents except the invoices you issue to your customers, which helps keep your details private, especially if you’re working from home; and,
• When your accountant works out your business’s tax, if your business makes a loss in its first few years of trading you can set those losses off against your other income in current or previous years. This means that if you paid PAYE in the preceding three years, you may get this refunded by HM Revenue & Customs, which will help with your cashflow.

But there are disadvantages to being a sole trader:

• There is no legal difference between you and your business. So if the business is sued, you’re sued – which means, in the worst-case scenario, that you could be at risk of losing your home, your car, and other personal belongings; and,
• If your profits exceed a certain level, you could pay more tax as a sole trader than you would if you traded through a limited company

Who must I tell that I’m a sole trader?

You must tell HM Revenue & Customs that you’re in business and you do so by submitting form CWF1 (www.hmrc.gov.uk/forms/cwf1.pdf). You have to do this within 3 months of starting your business or you could receive a £100 fine. Unfortunately you can’t register in advance of starting your business.

HM Revenue & Customs then require you to fill in a self-assessment tax return every year.

And that’s it. You don’t have to tell any other official agencies. For example, you don’t have to tell the VAT man – unless you decide your business should be registered for VAT.

What taxes do I pay as a sole trader?

You’ll pay income tax and class 4 National Insurance on the profits your business makes.

It’s similar to having income tax and National Insurance deducted from your salary when you’re an employee. However, when you’re a sole trader you only pay tax and NI twice a year.

Unless your business is very small (its profits are under £5,595 in the 2012/13 tax year ), you’ll also have to pay class 2 National Insurance, which is charged at a flat rate per week and doesn’t vary with the amount of profit your business makes. In the 2012/13 tax year the rate is £2.65 a week and this is usually paid by direct debit, on a six-monthly basis.

What we can do for you

If you’re looking at starting a business, we can advise you on whether starting out as a sole trader is appropriate for you.

If being a sole trader is right for you, then we’ll register you as self-employed with HM Revenue & Customs within the required time limits.

Every year when we prepare your accounts and Tax Return, we’ll review your position to see whether being a sole trader is still the most tax efficient way for you to trade. If there are any tax savings in another trading style we will quantify them for you and advise you of the pros and cons of that trading style.

If you’re starting up in business, contact us today to make sure you select the right trading vehicle for you.

Remember, as members of the ICAEW Business Advice Scheme we offer free initial consultations to new businesses.

As the title suggests, it’s packed with topical ideas from the recent Budget that could help you and your business pay less tax.

Topics covered in this issue include:

• Cash accounting for small businesses;
• The employer’s National Insurance allowance, which will effectively waive up to £2,000 of Employer’s National Insurance Contributions each year;
• Changes to the beneficial loan rules, which means that there are planning possibilities for business owners who can utilise a £10,000 potential interest and tax free loan; and,
• Much more besides!

Follow this link to read our Pay Less Tax Budget 2013 newsletter!

Chairman and Co-founder of B1G1

On 22 April there’s going to be a world class business event in Bideford.

Paul Dunn is flying in from Singapore to tell us how we can use our businesses to really connect. This is a once in a lifetime chance to hear a top business guru speak in North Devon!

Paul will be expanding on what he calls “moments of connection” – moments where you delight your clients and co-workers by engaging with them. Connections are important in all aspects of business and Paul will emphasise the value of establishing connections in new ways.

“Paul Dunn is the best speaker I have ever seen. His ideas and presentations transform the results of hundreds of UK businesses, including my own.  So if you want better results, you simply must go to this seminar.”  Steve Pipe, UK entrepreneur of the year

Paul will help you step back and think about why you do what you do, and provide the tools to help create more moments of delight with your team, your clients, and your clients’ clients. As well as showing you how technology can help make these connections even greater.

If you haven’t yet registered, do please check the event details here and register now. And do it quickly while tickets are still available.

You’re saving a full £90 on these tickets because we’re sponsoring the event. And we so want you to come. Don’t dare miss it. It’s a bargain at just £47.

We’re guaranteeing it too. If you don’t find the session of value, we’ll refund your ticket price right there and then.

So you’ve everything to gain — totally new insights, new ideas, new business, new contacts.

Come. We promise (and guarantee) you’ll be thrilled you did.

http://bit.ly/connect-bideford

Called the Seaside Success Fund, the new grant is administered by North Devon+ and should provide some 30 entrepreneurs and start-ups in Torridge with funding, business support and training.

The £40,000 funding has been made available by Torridge District Council and individuals in Bideford and the surrounding coastal parishes are eligible to apply.

Successful applicants will receive funding as well as advice and support from one of the dedicated and fully qualified business advisors at North Devon+.

Businesses can apply for funding for the purchase of equipment, product development or testing, research, marketing, rent, specific Licences and/or software, or training.

Applicants will  be expected to provide cash flow forecasts for their business.

For more information go to www.northdevonplus.com/seaside, email ataffs@northdevonplus.co.uk or call them on 01237 426426.

If you’re thinking of starting a business, or already have one in the area of benefit, and would like help with your application, then please contact us today.

Do you run your own company?

One of the reasons people trade through limited companies, is that they can remunerate themselves using a combination of salary and dividends, to pay themselves up £41,450 (including dividend tax credits) in 2013/2014 without incurring any National Insurance or Income Tax charges.

From 6 April 2013 onwards we recommend that you draw a salary up to a maximum of £641 per month.

This is just enough to maintain your National Insurance contribution record for state pension purposes, but it isn’t enough to make you actually pay any National Insurance.

Your salary is a tax deductible expense for your company, which will pay £1,538 less in Corporation Tax as a result.

As £641 a month is less than you probably want to live on, additional funds can be drawn as dividends. These should only be paid from profits (after Corporation Tax) so you do need to have confidence that sufficient profits are available. If there are insufficient profits the surplus funds withdrawn could be classed as an “unlawful distribution”. These are potentially repayable to your company.

Assuming you have no income other than the £641 per month salary, then you can receive £30,382 in dividends in the tax year commencing on 6 April 2013 without incurring any personal tax liability.

If your circumstances are more complex, or you would like to discuss this in more detail, then contact us today.

If you would like to discuss any point further, then please get in touch!

The 2013 Budget Report

Topics covered in this issue include:

• the increase in the Capital Gains Tax annual exempt amount;
• the forthcoming cap on unlimited tax reliefs (very relevant to people to offset trading losses against other taxed income);
• changes to Employer childcare schemes;
• disincorporation relief for businesses that want to cease trading as limited companies; and,
• that current favourite, Real Time Information.

Pay Less Tax – Spring 2013

With less and less to give away, it has certainly been an interesting budget and discussion. As usual, many things seem to have been pre-announced, mainly through the Evening Standard!

The following is a quick reminder of the key contents:

• Income tax personal allowance to rise to £10,000 from April 2014;
• There will be a employment allowance to cut National Insurance bills by £2,000 for every firm, this is the employers national insurance only, and will be the first £2,000 of Employers national insurance for all employers;
• The main rate of Corporation tax will fall to 20% in 2015;
• There are new tax incentives for ultra low-emission cars;
• There is a new 20% tax relief on childcare up to £6,000 per child from 2015;
• There is a new Single flat-rate pension of £144 a week which has been brought forward a year to 2016;
• The VAT registration threshold goes up from £77,000 to £79,000 from 1 April 2013;
• The VAT de-registration threshold goes up from £75,000 to £77,000 from 1 April 2013;
• There is an extension to the CGT holiday on seed enterprise investment schemes allowing any investors making capital gains in 2013-14 to receive 50% capital gains tax relief when they reinvest those gains into seed companies in either 2013-14 or 2014-15; and,
• There’s a penny off each pint of beer as of 24 March 2013!

Over the next few days, we’ll be looking at how specific proposals could affect your business.

Why not check it out and get in touch if any of the issues effect you?

Pay Less Tax – 2013 Bonus Edition

So how is that any different?

It means we’ve linked transactions in our business to different acts of giving. The transactions we’ve selected are ones that help our clients and our business. This means that each time we help one of our clients, we also support a project through B1G1. For example,  if we complete your tax return, a child in Africa is given access to fresh, clean water for life. And all you’ve had to do is let is help you. It really is as simple as that.

Just by choosing to work with us, you’ll automatically make giving a part of what you do too.

We recently hit a milestone without even realising it.

On 24 February 2013 we made our 100th giving through B1G1.

We were surprised and humbled to find this article about us on the B1G1 website: “Small firm, BIG giving, HUGE impact“. Why not check it out?

And here’s a real time tracker of what what our clients have helped us do so far:

Do you want to get involved too?