10 May 3 disastrous tax blunders to avoid as a sole trader
When it comes to being a sole trader, you need to have all your bases covered financially. Sole traders are held personally liable by the government which means your personal assets could be claimed in relation to any business debts. As such, no distinction is made between you as an individual and your company.
This becomes key when looking at your accountancy arrangements, especially when it comes to tax. Here are three of the most common blunders to avoid in this area as a sole trader.
1. Not putting money aside
As a sole trader, you will submit your annual tax return once a year and need to pay whatever tax bill you get from HMRC. The issue that a lot of sole traders have is forgetting to put money aside throughout the previous year to cover this cost. This is a real mistake as suddenly finding thousands of pounds out of the blue is not realistic for most people. It is much better to save at least 10% of the money you make each month for tax purposes.
2. Submitting your tax return late
When you are running your own business, there are lots of daily tasks to do. This can see some sole traders leave it too late to do their return and submit it after the deadline. The problem with this is that it will see penalties applied by the HMRC for late submission.
3. Forgetting about payments on account
Once your Income Tax and National Insurance amount go above a certain level, you may have to make payments on account. In simple terms, this means that in your first year of business you could end up paying one and a half year’s tax! This is because the HMRC will want you to pay half of what you think your next tax bill will be at the end of January and July. Needless to say, this can be a nasty surprise for some sole traders.
Of course, the best way to avoid any issues when it comes to your accountancy needs as a sole trader is to get professional help. Here at SQK Accountancy, we are fully experienced in this area and can help make sure your tax bill is one less thing to worry about.