What is a sole trader?

A sole trader is self-employed individual who sets up and owns its own business. A sole trader or sole proprietor is a business owned and controlled by one person who takes all the decisions, responsibility and profits from the business they run. You may decide to employ people in your business but you will be the ultimately owner of your business.

How to set up a Sole trader business?

To set up as a sole trader, you need to register for Self Assessment and file a tax return every year.

What taxes do I have to pay as a sole trader?

As a sole trader in the UK, you will be required to pay income tax, Class 2 National Insurance and Class 4 National Insurance if your taxable profits are above a certain level.

Tax and NI Rates for sole traders

Income Tax Rates 2017/18
Band Taxable profits Tax Rate
Personal allowance Up to £11,500 0%
Basic rate £11,501 to £45,000 20%
High rate £45,001 to £150,000 40%
Additional rate Over £150,000 45%
Class 2 Nation Insurance Rates 2017/18
Band Taxable profits NI payable
Small Profits Threshold (SPT) Below 6,025 per year 0
Above SPT Above £6,025 £2.85 per week
Class 4 Nation Insurance Rates 2017/18
Band Taxable profits NI Rate
Lower Profits Limit (LPL) Below £8,164 per year 0%
LPL to Upper Profits Limit (UPL) £8,164 to £45,000 9%
Above UPL Above £45,000 2%

Due dates

As a sole trader, you are required to prepare and submit your tax self assessment tax return and pay any tax (if any) to HMRC by 31 January following the end of the tax year.

For example, for the tax year 2017/18 (Period: 6 April 2017 to 5 April 2018), you will be required submit your tax return and pay your tax liability (if any) by 31 January 2019.

Your responsibilities

Being a sole trader, you have certain responsibilities such as:

  • Keep records of your sales and expenses for at least 5 years after the 31 January submission deadline of the relevant tax year
  • Send a self-assessment tax return every year by 31 January
  • Pay income tax on your profits and Class 2 and Class 4 National Insurance

How we can help you?

At Martax, we can help you with you:

  • Registration of your business with HMRC for tax purposes
  • Calculate your taxable profits on your business
  • Advise on claiming all the legitimate expenses to optimize tax savings
  • Complete your tax return using HMRC approved software
  • Advise you on the tax to be payable to HMRC and when they are due.

For more information and to arrange a free consultation, please contact us.