|
|
|
Published : December 12, 2011 |
Author : yogesh.ingress
Category : Accounting | Total Views
: 17 | Unrated
|
|
|
Information for sole traders starting your own new sole trader business including how to start up business, basic accounts and simple accounting
It is preferable to maintain usual basic accounts as part of the financial control manner in mind that all debts of the business are individual to the trader. By preparing monthly accounts cash flow can be managed additional efficiently and an estimate of future tax liability completed.
Easy Accounting
While a sole trader does not have to keep formal basic accounts financial records are required to enable the net taxable profit to be calculated with paperwork to support that calculation. Documentary evidence includes paperwork obtained from third parties such as sales records and receipts, purchase invoices and receipts and if maintained the business bank account. Sole trader accountant make really the simplest sole trader accounting as the formal reporting requirements are the easiest.
It is not essential to employ an accountant to prepare the sole trader accounts and the tax return. Employing an accountant has the advantages of saving time in preparing the basic accounts and the tax return. Professional advice on what expenses can be claimed including calculating the capital allowances. The disadvantage is the cost and that is the choice of the sole trader.
Tax returns, Income Tax
Sole traders are assessed for income tax and national insurance on an annual basis based upon the self employed tax return everyone self employed must complete and send to the tax authority. HMRC issue tax returns in April each year which require be completing and submitting by 31 October following the end of the financial year. Online Tax return forms can be filed online and submitted with a financial submission date of 31 January, some 10 months after the end of the financial year.
In calculating the tax payable HMRC deduct from the net taxable profit the personal tax allowance and calculate the income tax payable at the 20 per cent basic rate for 2008-09 on profits up to the higher earnings threshold and 40 per cent on net earnings above the higher threshold. Losses incurred in previous years can be offset against the net taxable profit.
Benefits and disadvantages of VAT registration
Starting up as a sole trader does not involve compulsory registration for VAT. If a business is unregistered for VAT then the VAT charged on purchases is treated in the accounts as a cost and VAT is not added to the sales values. Businesses are required to register for VAT when sales reach the VAT threshold in a 12 month period, the current VAT threshold as from April.
If sales are mainly to the public who cannot reclaim the VAT charged then it is usually better to delay registration until the threshold is reached. Where sales are mainly to other VAT registered businesses that can reclaim the VAT the sole trader adds to the sales value then it may be appropriate to voluntarily register to enable the VAT input charged on purchases to be reclaimed against the VAT charged to customers.
A business set up that registers for VAT needs to maintain more than just basic accounts. Easy accounting can be adopted provided there is an audit trail to support the quarterly VAT return.
Bank accounts
A sole trader does not require opening a separate business account. If a detailed business account is used then HMRC have a right to see the transactions through that business account as supporting evidence to the accounts and so bookkeeping records should be maintained. HMRC may ask to see a private account but they do not have a statutory right to do so.
Since all banking transactions are the personal responsibility and liability of the sole trader if a separate business bank account is opened then it must state the name of the sole trader. Typically the bank account name would be Your Name trading as Business Name.
The advantages of maintaining a separate business account are significant in keeping business and personal finances separate. The disadvantages are business bank charges and being committed to declaring the details to HMRC should they ask. If the business is run honestly then that should not be a problem. |
|
|
 Visitor's Comments |
|
|
|
Subscription |
| Subscribe now and receive free articles and updates
instantly. |
|
|
|
|
Statistics |
| Total Articles |
91169
|
| Total Authors |
13801
|
| Total Views |
2235022
|
| Total categories |
62
|
|
