A sole trader is a person who is self-employed and owns and runs their own business as an individual. From a legal perspective there is no difference between the owner and the legal entity.
A sole trader will pay income tax on business profits which will be disclosed on a self-assessment tax return. These are calculated as follows: Profit up to £12,570 – 0% (called personal allowance); Profit of £12,571 to £50,270 – 20% (basic rate); Profit of £50,271 to £150,000 – 40% (higher rate); Profit of £150,000+ – 45% (additional rate).
In addition, there are National Insurance Contributions (NICs) to be made. These are again dependent on profit levels. If your profit exceeds £6,725, you’ll need to pay Class 2 NICs at the equivalent of £3.15 per week and, if your annual profits are more that £11,909, you’ll also have to pay Class 4 NICs. These are calculated as 10.25% on profits up to £50,270 and 3.25% on any profits above this.
A sole trader will also have to register for VAT if your annual turnover exceeds £85,000 within a 12 month period.
If you’d like to discuss any of the above or have any questions, please contact us via the link below.
