Sole Trader Self Assessment

As the fiscal year draws to a close, businesses across the UK turn their attention to preparing their year-end accounts. Whether you run a limited company or operate as a sole trader, the process of compiling these accounts is a crucial aspect of your financial management. Year-end accounts provide a comprehensive overview of your business’s financial health, ensure compliance with legal requirements, and serve as a valuable tool for strategic planning.

HPL Accountancy & Business Services Ltd, Telford, can help ensure you remain compliant. Here we explore the importance of year-end accounts for sole traders in the UK, highlighting the benefits and responsibilities involved.

The Importance of Yearly accounts for Sole Traders

Sole Traders

While sole traders do not have the same statutory obligations as limited companies, they are still required to report their income and expenses to HM Revenue and Customs (HMRC) through the Self-Assessment tax return. Self-Assessment is simply a system used to collect Income Tax and some other taxes, such as Capital Gains Tax (CGT).

This involves:

Income and Expenditure Statement: Similar to a profit and loss account, this statement details the business’s income and expenses over the year.
Supporting Documents: Receipts, invoices, and bank statements that substantiate the figures reported.

Accurate and timely submission is essential to avoid penalties and ensure compliance with tax regulations.

Tax return deadlines and penalties

If you want to fill in a paper tax return, you must send it to HMRC by 31st October, but if you opt to fill in your tax return online, you must send it online by 31st January. Also, if you want HMRC to use your tax code to collect any tax you owe through your wages or pension, you must file online by 30th December.

Finally, failure to meet the 31st January deadline will automatically result in you having to pay a £100 penalty – even if you don’t owe any tax.

When is the tax and NIC payable

If you’re completing a tax return as a one-off, for example you’ve sold shares and have CGT to pay, then you pay any tax due on 31st January; but for anyone who must complete a tax return every year, it can be a three-stage process, unless your tax liability is less than £1,000.

For those individuals whose tax liability does not exceed £1,000, you merely pay the sum owed by the January deadline and that is it until the following year. Individuals with a tax liability in excess of £1,000 will automatically be included in the payment on account system

Payments on account

These are advance payments towards your tax bill (including Class 4 NIC if you’re self-employed) and you have to make 2 payments on account every year unless:

Your last Self-Assessment tax bill was less than £1,000
You’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings